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PART II - CONTRIBUTION OF COMMUNITY POLICIES TO COHESION

6 Environment policy

Social and economic objectives, including a strengthening of cohesion, are not in conflict with environmental aims but are complementary. There is no inherent contradiction between the pursuit, on the one hand, of higher economic growth in the weakest regions and Member States and, on the other, improvements in the environment. Indeed, environmental quality is a key element of quality of life in any region. Environmental improvements can, accordingly, increase the attractiveness of a region for outside investors and its economic potential - for the growth of tourism, for example. In addition, weaker members of society, notably those in inner city areas, or lagging regions, in particular, stand to benefit disproportionately from improvements. Growth in the lagging regions, moreover, will enhance their willingness and ability to pay for a cleaner environment.

However, there is an interaction between the two policies, and this interaction has to be managed to ensure there are gains on both fronts.1 'Improved environmental quality… will have to come mostly from changes in economic activity and socio-economic policies' 2 and it is important to assess these changes, in terms not just environmental benefits but their effects on cohesion.

The starting point for analysing the interaction is that environmental policy, by necessitating additional investment to reach higher standards or by imposing new taxes on environmentally damaging activities, seems to increase costs. In reality, however, it makes the costs of environmental damage more visible. Any costs, moreover, need to be weighed against the benefits noted above, even if these tend to be more difficult to quantify. The costs should not be overstated; estimates tend to show that they are very small relative to overall costs of production, especially when implementation is via market-based instruments. For example, one of the most ambitious parts of environmental policy in the EU is to achieve the Kyoto targets for reducing emissions of greenhouse gases. Yet the estimated cost of this is around EUR 7.5 billion a year - only 0.09% of EU GDP 3 - which has to be set against the benefits of avoiding the damaging effects of accelerated climate change.

However, while, in overall terms, cost increases tend to be relatively small, they can often be concentrated in particular regions or sectors or on particular social groups. The fact that the long-term benefits of environmental protection outweigh the costs may not be true for everyone in society. Environmental measures can, therefore, have significant distributional implications.4

There are, therefore, three main questions to ask in analysing the cohesion impact of environmental policies:

  • do the costs of implementation fall disproportionately on less prosperous Member States, regions or social groups?

  • do the benefits, eg in terms of increased quality of life, accrue disproportionately to these?

  • are there gains to employment?


In some cases, such as in respect of the pursuit of the Kyoto targets, it is difficult to identify or quantify significant differential effects. However, in two key areas of environmental policy, waste and water, differential effects can be identified.

European Waste Policy

The Fifth Environmental Action Programme 'Towards sustainability', reiterates the priorities for waste management in the following order of preference:5

(1) Where possible, the generation of waste should be prevented
(2) If this is not possible, it should be reused
(3) Otherwise, it should be recycled
(4) If not, waste should be sent for energy recovery
(5) Only if none of the above are possible, should landfill be used as the last resort

According to a study for the Commission, 6 there are a number of elements which are relevant for cohesion.

First, the production of waste is less in the cohesion countries than in the EU as a whole, ranging from 90% of the average (Ireland) to only 65% (Greece). Accordingly, the potential implementation cost of waste policy is proportionately lower in cohesion countries although, as GDP per head in these countries continues to converge to the EU average, they may produce more waste.

Secondly, however, the Cohesion Countries lag behind in the treatment of waste.
This is true both for the most virtuous form of treatment, recycling (Portugal, in particular, recycles only 4% of total waste as opposed to an EU average of 9%) and for the worst form of disposal, landfill (93% of Greek waste ends here, as opposed to an EU average of 66%). Only in Spain is the disposal profile similar to that in the EU as a whole, and even here, this applies much less to the lagging regions.

The cost of meeting the waste management targets is, therefore, likely to fall just as (or even more) heavily on these countries (except Spain) as it does on the EU as whole, despite their lower waste production. All of them, except Spain, have, accordingly, been given an extension until 2006 to meet the first set of targets. In addition, the Cohesion Fund is making a major contribution to costs - over EUR 200 million annually, covering up to 75% of costs (see 'Cohesion Fund investments in environment and waste treatment'), which means the costs falling on these countries will be much less than elsewhere.

Moreover, in terms of benefits, they are likely to see a relatively large reduction in landfill waste disposal and up to 46,000 new jobs created in managing such programmes (4,000 in Ireland, 9,000 in Portugal, 10,000 in Greece and 23,000 in Spain).

Waste in the CECs

The situation in the Central European candidate countries is similar to that in the cohesion countries. The production of municipal waste is low (typically 70% of the EU average), but growing fast (it is forecast to increase by 50% over the period 1995 to 2010). Moreover, the proportion disposed of in landfill sites is high (typically 80% or more). The problem is particularly serious in Poland, where almost 99% of waste is disposed of in landfill sites, which cover a total of 3020 hectares and include the dumping of 1000 tonnes a year of (incinerated) dangerous medical waste. This highlights a typical problem in many candidate countries that landfill sites often do not meet EU safety standards.

An additional problem in some countries is the waste liability inherited from past activities, both military and industrial. For example the production of shale oil in Estonia over the past 60 years has left spoil heaps over 100 metres high, which not only blight the landscape but contaminate the groundwater. The damage being caused by shale oil production represents a major challenge for policy given the implications of any reduction for regional development and energy supply.

Similar policy conclusions apply as for the cohesion countries. Despite producing less waste, candidate countries will need to spend as much, if not more, per head than the EU average in order to implement the acquis, in a context where incomes are much lower. The Cohesion Fund and ISPA (the pre-accession structural instrument) are likely to make a significant contribution to this. In terms of employment, the estimates for current Member States suggest that implementing the acquis could create up to 50,000 jobs in the CECs.

European water policies

Improvements in water quality are likely to require a large part of the EUR 260 billion estimated to be needed over a 20-year period for the EU15 to comply with the 10 directives on environment. There is, therefore, the potential for a significant effect on cohesion.

One feature of water management conditions this effect; the role of public authorities in this means, among other things, that historically polluters have often not paid for the damage they cause. As the 'polluter-pays principle' is applied more systematically, there is likely to be a marked redistribution of costs between both social groups and regions.
According to a study for the Commission,7 there are, in particular, four elements of EU water legislation which could have effects on cohesion:

  • the Water Framework Directive
  • the Drinking Water Directive
  • the Urban Waste Water Treatment Directive
  • the Nitrate Directive

These are considered in turn below.

The Water Framework Directive

Adopted in 2000 and incorporating many previous directives, the Water Framework Directive improves the coordination of standards and shifts planning from administrative entities (such as municipalities) to 'natural' entities (such as those responsible for river basins). A key point for cohesion, however, is the requirement, in line with the polluter-pays principle, for increasing the extent to which the costs of water services are recovered from users.

At present, cost recovery is low, especially in the cohesion countries and especially as regards agricultural producers. Eliminating the cross-subsidy which now exists might have a negative effect on cohesion. Although the present pattern of cross-subsidy between households, industry and agriculture is complicated and varies from region to region, some general conclusions can be drawn.

Full-cost recovery from households would reduce their income by an estimated 1.7% in the cohesion countries as opposed to only 0.2% on average in other Member States. But this is a maximum estimate since the Directive only mandates an increase in cost recovery, not full cost recovery. The Cohesion Fund will cover a large part of the cost of investment in improving water supply main drainage. The shift in costs from taxpayers to householders will mean that certain user groups will pay more than they do at present in taxes, including those on low incomes, thosewith large families and those who are living in smaller or remote communities.

The recovery of the cost of supply from industry is generally higher than for households already and, in most Member States, costs are recovered in full. The cohesion countries, however, are exceptions and none of them impose the full cost of supply on industry connected to the network. A move to full cost recovery, therefore, is likely to increase the costs of water use by industry in these countries, especially in sectors which are heavy users, though not enough to affect their competitiveness significantly.

The recovery of supply costs is at present lowest for agricultural users, and very few countries impose the full cost on these, especially in respect of public irrigation schemes. As a result, the impact on rural areas is likely to be substantial, particularly where crops requiring a lot of water are grown. The use of the Cohesion Fund can reduce some of these adverse effects, but in deploying this, it is important to maintain incentives to increase the efficiency of water use.

The Drinking Water Directive

The main effect of the revision of the Drinking Water Directive is to reduce the permissible levels of lead. It is generally impossible to meet the new standard if water is delivered through lead pipes. These, however, are not common in the three least prosperous Member States, so the implementation costs are lower there than elsewhere.

Within Member States, on the other hand, lead pollution seems to be relatively high in less favoured regions. If improvements are paid for at national level, there is, therefore, a positive effect on regional cohesion. Moreover, there is also a positive effect on social cohesion, since health problems from lead disproportionately affect poorer people, partly because they are more sensitive (old people and children are most at risk) or simply because they live in poor quality, older housing close to sources of lead pollution and seldom drink bottled or filtered water.

Meeting the requirements of the Drinking Water Directive is a major challenge for most of the candidate countries. In many - Estonia, Latvia, Lithuania, Romania, and Slovakia, in particular - over 20% of the population is not connected to drinking water supply systems. Significant investment is also required to improve the quality of drinking water - nearly 25% of people in Hungary, for example, are supplied with drinking water that does not meet Community standards. It is estimated that expenditure of between EUR 13 and 17 billion in the candidate countries is needed to meet these standards.

The Urban Waste Water Treatment Directive

This is by far the most expensive of the directives to implement, accounting for some EUR 150 billion of the estimated EUR 260 billion of total expenditure for the EU15 implied by the ten key environment directives. This directive also requires the highest level of investment in the candidate countries - of EUR 27-33 billion, according to national studies. The main effect on cohesion results from the substantial investment required in construction and maintenance of the waste water treatment system.

There are substantial differences in the estimated cost of implementation between Member States, reflecting their initial positions - some being much more advanced in the treatment of sewage - and the state of their natural environment. The first factor tends to push up the costs in the cohesion countries because the requirements are higher, while the second tends to reduce costs because of the relatively high assimilative capacity of the environment.

Since, however, around a quarter of the necessary investment in these countries is being financed by the Cohesion Fund (and the Structural Funds are making a similar contribution in Eastern Germany), the cost burden on cohesion countries will be limited. The large-scale investment required is likely to boost employment, particularly in construction, where the direct effect 8 is to add 2% to output, implying increased employment of up to 200,000. For most of the cohesion countries, however, there is likely to be substantial 'leakage' of such benefits abroad because of the small scale of their waste water and eco-industries, so much of the benefit is likely to accrue to firms in the more prosperous Member States.
In sum, the effect of expenditure on cohesion is likely to be positive, but it would be larger if eco-industries were to expand in the cohesion countries.

The Nitrate Directive

This directive was adopted in 1991, but is only now being implemented, illustrating the often long delay involved in water legislation. It lays down standards for the use of nitrogen in farming and, therefore, has clear implications for the agricultural sector and for rural communities.

The key point is that there are various forms of nitrogen put into the soil, through chemical fertilisers, animal manure and natural deposition, which comes out in crops and livestock, but it also leaks into water bodies or is emitted into the atmosphere. Problems arise when the loading of nitrogen exceeds the 'absorptive capacity.'

The Nitrate Directive affects cohesion in at least two major ways. First, the imposition of application standards, notably for nitrogen from animal manure, affects livestock producers, particularly high-intensity ones. In Ireland and Greece, where nitrogen is close to the EU average, the increased cost implied by the directive is likely to be modest. In Spain and Portugal, where farming is less intensive, the effects could even be positive, with anecdotal evidence of such activities as pig farming being transferred there from the most intensive-producing countries, like the Netherlands.

At the same time, there is evidence that the codes of good agricultural practice which are part of the directive can lead to substantial cost savings through better nitrogen management. Although the efficiency of nitrogen use could be improved throughout the EU, the largest potential gains appear to be in the Mediterranean, where there are wide variations in nitrogen use between farms even of similar types.

Overall policy effects

In sum, environmental legislation is on balance more likely to have positive than negative effects on regional cohesion. The same, however, may not be the case for social cohesion, which might, therefore, justify accompanying measures being taken:

  • at the national level, the cohesion countries are likely to share significantly in the benefits of environmental improvements (including the quality of life which might attract business investment) and, though the costs of implementing legislation might in a number of cases be higher than elsewhere, these will be met to a large extent by the Cohesion Fund;

  • at the regional level, some less prosperous areas benefit most from environmental improvements, for example those in inner cities from wastewater treatment, and often have the cost of these paid by central government or the Cohesion Fund;

  • at sectoral level, there will be cost increases for some sectors, though in most cases limited in relation to production costs. In a few cases, these will fall disproportionately on the less prosperous regions, rural areas being a notable example. These will bear the cost of the Nitrate directive, reflecting the true cost of the activities carried out there. The main effects, however, will be on agricultural areas in the more prosperous Member States and rural areas in Spain and Portugal are actually likely to benefit. A move towards full recovery of costs of water supply is likely to fall heavily on agricultural users and on households in remote communities, although again because they will start to pay the true cost of their activities;

  • at the social level, costs in a number of cases may, initially at least, fall disproportionately on poorer people and those living in remote areas, the shift from taxpayers to households in respect of the Water Framework Directive being a notable instance.
    Environmental protection measures, however, tend to benefit employment. The gains are significant, even if they are modest in relation to the overall need for jobs in the EU. For example:

  • implementing EU waste legislation is likely to boost employment in the cohesion countries by up to 35,000 in the next five years and by 50,000 in applicant countries when they fully implement the acquis;

  • the Urban and Waste Water Treatment Directive may create up to 200,000 jobs in construction and some in manufacturing, though to the extent that more prosperous regions tend to have bigger eco-industries, they are likely to gain most.
  •  

The above conclusions are somewhat tentative because of the limited data available at present. The intention is to rectify this in time for the next Cohesion Report.



BACK
  1. European Commission (2000) "Bringing our needs and responsibilities together - integrating environmental issues with economic policy".
  2. European Environmental Agency (1998) 'Europe's environment: the second assessment'.
  3. Ecofys, National Technical University of Athens, AEA Technologies (2001 forthcoming), 'Economic evaluation of sector objectives for climate change'.
  4. European Commission (2000) op. cit.
  5. This hierarchy was already established in Directive 75/442/EEC on waste management, as amended by directive 91/156/EEC.
  6. Club Espaņol de los residuos (2000), 'The Impact of Community Environmental-Waste Policies on Economic and Social Cohesion'.
  7. WRc (2000) 'The Impact of Community Environment-Water Policies on Economic and Social Cohesion'.
  8. The final effect is likely to be less than this because of displacement effects.

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