WG Economics
Document n°1
Assessment of environmental and resource costs for supporting the implementation of the
Water Framework Directive
Building on experiences from the Netherlands, France and Spain
Date
14/07/2014
Document status
Draft
This “share of experience” document aims at illustrating how environmental and resource costs can
be assessed for supporting the implementation of the European Union (EU) Water Framework
Directive (WFD). It complements the earlier Information Sheet on the “Assessment of Environmental
and Resource Costs in the Water Framework Directive” prepared by the Drafting Group ECO2 of
Working Group 2B of the Common Implementation Strategy (CIS) and finalised in June 2004.
This document presents in particular the experiences carried out by three Member States (MS):

The combined assessment in the Netherlands of historical environmental and resource
costs already internalised in drinking water and waste water services;

The assessment of environmental costs carried out in France in the context of the second
WFD management cycle;

The separate assessments of environmental costs and resource costs performed by Spain
for the Guadiana River and presented in the River Basin Management Plan.
Overall, the assessments of environmental costs carried out by the three countries focus on costs,
be it costs of measures proposed for reducing existing pressures on the aquatic environment or costs
of measures already taken and internalised into payments (fees/bills) of users of concerned water
services.
It is expected that these illustrations can help other MS to develop and apply adequate
methodologies for assessing environmental & resource costs in the context of their second WFD river
basin management cycle.
1
Contents
1. Background ..................................................................................................................... 3
2.
Assessing Environmental & Resource Costs – A reminder ........................................ 6
5. Illustration 1 - Assessing (combined) historical environmental & resource costs in the
Netherlands........................................................................................................................... 11
6. Illustration 2 - Assessing environmental costs in the context of the second river basin
management cycle in France ................................................................................................ 13
7. Illustration 3 - Assessing environmental and resource costs in the Guadiana River
Basin in Spain....................................................................................................................... 21
8. In conclusion: guiding the assessment of Environmental & Resource Costs in the
context of the WFD implementation .................................................................................... 27
2
1. Background1
The European Union (EU) Water Framework Directive (WFD) has strengthened the role of economic
methods and tools for supporting water management decisions in Europe. The WFD promotes a more
systematic application of economic methods for supporting water management decisions, such as
cost-effectiveness or cost-benefit analyses. It also promotes water pricing that: ensures a sound and
transparent recovery of the costs of water services (both financial and environmental & resource
costs); and provides an incentive for more efficient water use. In this way, water pricing may contribute
to the achievement of the environmental objectives of the WFD (good water status for all waters) and
the sustainable use of water.
While guidance on the assessment of financial costs and financial cost recovery for water services is
rather straightforward, the assessment of environmental and resource costs is more challenging. Key
issues linked to the assessment of environmental and resource costs range from the very definition of
these costs (individually or combined), the different methods that can be applied for this assessment
or the relevance of individual methods for supporting specific water management decisions (e.g. for
illustrating the relative importance of these costs or supporting the design of economic instruments for
internalising these costs).
This challenge was recognised at the onset, the assessment of environmental and resource costs
being a key issue addressed in the WATECO guidance and its annexes adopted in 2002 in the
context of the WFD Common Implementation Strategy (CIS) 2 . The clarifications provided by the
WATECO guidance was, however, felt not sufficient. And complementary efforts were made to
provide additional guidance: in particular, an Information Sheet dedicated to the “Assessment of
Environmental and Resource Costs in the Water Framework Directive” was prepared by the Drafting
Group ECO2 of Working Group 2B of the CIS and finalised in June 20043, following the organisation of
a dedicated workshop on this topic in March 2004 4. This Information Sheet stresses in particular the
two main methods that can be used for assessing these costs, namely:

The cost-based approach that is based on the determination of the cost of measures to
protect (or to prevent damage to) the environment. The environmental costs calculated are
often used as a proxy for environmental damage;

The benefit-based approach which focuses on the determination of the loss of potential
benefits from the damage caused by the unsustainable use of water (i.e. the benefits that
could be expected if water would be used sustainably and the environmental objectives of the
WFD achieved). These approaches build on “stated-preference” techniques that help
assessing individuals’ Willingness to Pay and Willingness to Accept.
Ten years later, the assessment of environmental and resource costs is still considered challenging by
many MS. MS have applied a variety of approaches for performing the assessment of environmental &
resource costs, ranging from a qualitative description of these costs, the analysis of current
environmental taxes and charges expected to internalise (partly) these costs or the assessment of
costs of measures already taken for reducing (past) pollution and pressures. While they are clearly
complementary, these different approaches do not address the same components of the wider
“environmental and resource costs” issue, as illustrated in the figure presented below.
1
This general section has been developed by Gloria de Paoli and Pierre Strosser (ACTeon) in the context of their
support to DG Environment to the activities of the Workingn Group (WG) Economics of the Common
Implementation Strategy (CIS). For more information on the activities of the Economics WG, to contact: Lukasz
Latala, DG Environment, at [email protected].
2 http://ec.europa.eu/environment/water/water-framework/economics/pdf/Guidance%201%20-%20Economics%20%20WATECO.pdf
3https://circabc.europa.eu/sd/a/5337253e-6f26-4d25-84f4-34b2184f22cf/Final%20version%2005-07-04.pdf
4
Environmental and Resource Costs and the Water Framework Directive An overview of European practices
Workshop Proceedings. Editors Roy Brouwer and Pierre Strosser. RIZA Working Paper 2004.112x.
(http://publicaties.minienm.nl/download-bijlage/14703/2004-112x.pdf)
3
Figure 1. Linking measures, water status and ERC (assessments)
The aim of the document at hand to share the experiences of selected MS more widely to support MS
with the application of assessments in the context of the second WFD river basin management cycle.
The present document builds on three illustrations:

The illustration of the cost-based approach for the combined assessment of historical
environmental and resource costs in the Netherlands. However, as these costs are already
internalized through existing pricing mechanisms, these costs are to be considered as
financial costs in the context of the WFD cost-recovery assessment5;

The assessment of current environmental costs carried out in France in the context of the
second WFD management cycle, building also on cost-based approaches;

The separate assessments of environmental costs and of resource costs performed by Spain
for the Guadiana river basin, using in particular prices of land and water transactions for
capturing resource costs.
The salient features of the three illustrations are presented in the following summary table.
5
See also the definitions of ERCs and related clarifications in chapter 2 of this document.
4
Table 1. Key features of illustrations presented in this report
Issues
The Netherlands
France
Spain
Cost type
considered
Combined historical
environmental & resource
costs
already
internalised/recovered in
tariffs for water services
Current environmental costs (costs not
yet internalised), distinguishing “costs
imposed on other water users” (named
“compensatory costs”) as a separate
category
Current Environmental (not
yet internalised) costs &
resource costs, cost types
assessed separately
Scale of the
assessment
National
Methodology
applied
Cost-based method using
information on current water
service costs (including
self-services)
Combination of illustrations from
different French river basin districts
Assessment of current environmental
costs based on estimates of the costs
of the full programme of measures
required for achieving good water
status
“Compensatory costs” assessed on the
basis of current costs of remediation
and mitigation actions taken by users
negatively impacted by the current
state of the aquatic environment
Guadiana river basin
For environmental costs:
based on estimates of the
costs of measures required
for achieving good water
status
Resource costs: based on
the price of water/irrigated
land in existing water/land
market transactions
The document is structured as follows:

Chapter 2 summarises the main methodological issues and options that are presented in
existing guidance, in particular in the Information Sheet dedicated to the “Assessment of
Environmental and Resource Costs in the Water Framework Directive” prepared by the
Drafting Group ECO2 of Working Group 2B of the CIS. As MS have mostly applied the costbased approach, chapter 2 will focus on illustrating the cost-based approach;

Chapter 3, 4 & 5 presents the three illustrations developed for the Netherlands, France and
Spain, respectively;

In conclusion, Chapter 6 proposes a series of recommendations to guide the assessment of
the recovery of ERC to be carried out by MS in the context of the second and third RBMPs.
5
2.
Assessing Environmental & Resource Costs – A reminder6
1. Environmental and Resource Costs in the Water Framework Directive
According to Article 9 of the WFD, “Member States shall take account of the principle of recovery of
the costs of water services, including environmental and resource costs”. However, although the term
explicitely recurs in Article 9 only, ERCs are also implicitely involved in other WFD obligations, as
illustrated in Box 1 below7.
Box 1 – The role of Environmental and Resource costs in WFD implementation
Environmental and resource costs come into play in different Articles of the WFD
 Article 9: take account of the cost recovery of water services, including environmental and resource costs.

Article 9: Member States shall ensure by 2010 that water pricing policies provide adequate incentives for water users
to use water resources efficiently, and thereby contribute to the environmental objectives of this Directive.

Annex III and Article 11: make judgments about the most cost-effective combination of measures in respect of water
uses to be included in the programme of measures.

Article 4: possible economic justification for derogation (including designation of water body status):

Objectives derogation if the achievement of these objectives would be disproportionately expensive.

Derogation for new modification or sustainable economic activity, if benefits of this activity outweigh benefits
from good water status.
In other words, the assessment of ERCs plays a role in:

The assessment of cost recovery of water services. Assessing the total costs, including
ERCs, and the way such costs are paid for by the different users, allows for assessing: (i) the
extent to which the Polluter Pays Principle applies; and (ii) to what extent ERCs are already
internalized through existing pricing mechanisms;

Providing an incentive for a more efficient water use, by internalizing such costs in the
pricing mechanisms,

Selecting a cost-effective Programme of Measures, by providing a signal of how, and to
what extent, existing and new environmental targets are met, or not and what the associated
costs are;

In the cost-benefits analysis, where the costs of measures are compared to damage and
opportunity costs avoided or, in other words, the avoided environmental and resource costs.
2. How to define ERCs?
Even though the WFD explicitely mentions environmental and resource costs, it does not provide a
clear definition of such costs. This gap was then filled by the WATECO Guidance (2003) 8, which
provided the definitions highlighted in Box 2 below.
Box 2 – Environmental and Resource Costs: definitions in the WATECO Guidance
Environmental Costs:
6
Thiscosts
section
has been
developed
basedon
onthe
the
earlier contributions
from
Rob
vander
Veeren,
economist
at athe
“The
of damage
that water
uses impose
environment
and ecosystem
and
those
who use
the environment
(e.g.
Ministry
of
Transport
&
Water
Management,
The
Netherlands.
reduction in the ecological quality of aquatic ecosystems or the salinisation and degradation of productive soils)”.
7
As also illustrated in Assessment of Environmental and Resource Costs in the Water Framework Directive:
Resource Costs:
Information sheet prepared by Drafting Group ECO2 Common Implementation Strategy, Working Group 2B, June
2004.
“The costs of foregone opportunities which other uses suffer due to the depletion of the resource beyond its natural rate of
8
WATECO
Guidance
(2003),
Glossary,
pages 69 &
recharge
or recovery
(e.g.
linked to
the over-abstraction
of 72
groundwater)”.
6
However, in order to be operational, these definitions needed to be further developed, and this was
done in the Information Sheet developed in 2004 9.
First of all, the concepts of environmental and resource costs must be further clarified, as follows:

Environmental costs: a distinction can be made between damage costs to the environment
and to those who use the water environment. The costs of environmental damage refer to
non-use values attached to healthy functioning aquatic ecosystems, whereas the costs to
those who use the water environment refer, conversely, to the corresponding use values 10;

Resource costs: these costs only arise if alternative water uses generate a higher economic
value than present or foreseen future water use. This could occur foe a variety of reasons,
including institutional ones (e.g. current or future distribution of pollution permits). Thus, in
contrast with the definition in the WATECO Guidance, resource costs do not only occur in
case of water resource depletion, but they can arise as a result of an inefficient allocation of
water and/or pollution, when alternative water uses would generate a higher net economic
value.
There is obviously a strong link between environmental costs and environmental damage, so that
assessing these costs require a thorough knowledge on the physical status of the water system, the
pressures exerted on the system and the related damage. In general, the extent of the damage
depends upon the difference between some reference and target situation. In the context of WFD
implementaiton, the reference status would be the expected status of a water body in 2021, whereas
the target status would be the good ecological status in 2021: the environmental costs will be
determined by the difference between expected and good status.
This example bring us to another key distinction that needs to be made when assessing environmental
and resource costs: the difference between internal and external ERCs. In the above example,
internal and external ERCs can be distinguished as illustrated in the figure below.
Current status
Expected status
in 2021
Environmental costs
internalized through PoM
implementation
Good status
External environmental
costs
Figure 2. Internal and external environmental costs in WFD implementation
In the context of WFD implementation and cost recovery, the actual costs of activities and measures,
which prevent and mitigate potential damage to the water environment and to other water uses, must
be regarded as internal environmental protection costs. Ideally, in accordance to the Polluter Pays
Principle, these costs are distributed among user groups on the basis of user groups’ contribution to
the environmental damage. Internal environmental protection costs can be considered as financial
costs –as these are the actual costs incurred for implementing measures and activities. Thus, what we
are interested in are the external environmental and resource costs.
9
Assessment of Environmental and Resource Costs in the Water Framework Directive: Information sheet
prepared by Drafting Group ECO2 Common Implementation Strategy, Working Group 2B, June 2004.
10
This is in line with –and further clarifies- the distinction made in the WATECO Guidance between use and nonuse values
7
3. The assessment of Environmental Costs: the cost-based approach11
As previously mentioned, two main, non-mutually exclusive approaches are available to assess
environmental and resource costs: the cost-based and the benefit-based approaches. The costbased approach is the most widely applied methodology so far and, for this reason, this paper only
focuses on this approach.
The flow-chart below illustrates the main steps of the cost revcovery assessment, which includes the
assessment of ERCs, and namely:

Environmental (impact) assessment to qualify and quantify the environmental damage
involved: this step requires the identification of pressures and impacts on water bodies;

Economic assessment of internalized costs: which measures are in place to tackle the
environmental damage? What are the costs of these measures? And who pays for such
costs? The costs that are imposed on polluters or beneficiaries of environmental services are
defined as internal environmental costs; in contrast, the costs posed on other water users,
including the environment, are considered external environmental costs. The assessment of
these costs is required in the context of cost-recovery assessment and how costs of existing
or planned measures are internalized through existing or planned pricing and financing
mechanisms. As these costs are already internalized through existing or planned measures,
are financial costs (as previously mentioned);

Economic assessment of the residual damage, or external environmental protection
costs: the costs of this residual damage are in fact the environmental costs which need to be
assessed. According to the cost-based approach, outlined in the flow chart, the
environmental protection costs are used as a proxy for the environmental (damage) costs. As
previously mentioned, when existing or planned measures are sufficient to reach good
ecological status by 2021, there are no environmental (damage) costs. However, for several
reasons (e.g. technical reasons) existing or planned measures might not be sufficient to reach
GES by 2021, and such measures are rather aimed at reaching a lower target status. In this
case, the environmental damage is the difference between the target status and GES, and the
related environmental costs are the costs of the additional measures which would be
needed to reach GES.
11
Text based upon Assessment of Environmental and Resource Costs in the Water Framework Directive:
Information sheet prepared by Drafting Group ECO2 Common Implementation Strategy, Working Group 2B, June
2004.
8
Cost-based approach
Figure 3. Assessing environmental costs with the cost-based approach12
Thus, one of the basic requirements of the cost-based approach is the establishment of proper
reference and target situations. In the context of WFD implementation, it makes sense to establish
that: reaching GES by 2021 is the reference situation; and the actual expected objective in terms of
ecological status for a specific water body by 2021 is the target situation.
4. Assessing resource costs
At present, there is no specific guidance on the assessment of resource cost. The WATECO Guidance
illustrates potential methods for performing resource costs assessment, as reported in Box 3 below13.
It specifies that further development are required in this field.
12
Adapted figure from Assessment of Environmental and Resource Costs in the Water Framework Directive:
Information sheet prepared by Drafting Group ECO2 Common Implementation Strategy, Working Group 2B, June
2004.
13
WATECO Guidance, page 122.
9
Box 3 – Example of resource cost assessment from the WATECO Guidance



Two users (City A and City B) are competing for the use of the same water. It is possible to estimate the demand curve
for each of them;
If there is sufficient water available to satisfy both demands, there is no scarcity and the resource cost of water is zero;
Suppose that due to poor rainfall in a given season, there is only a limited amount of water available (supply with
scarcity). Due to this scarcity, there will be a resource cost, which can be calculated by finding the price for which total
demand is exactly to the supply with scarcity. The difference between that price and the normal price is the resource
cost, as shown in the Figure below.
10
5. Illustration 1 - Assessing (combined) historical environmental &
resource costs in the Netherlands14
1. The practical application of the cost based approach
For the Netherlands, two considerations played an important role for choosing the cost based
approach: 1) data availability and (2) the reliability and accuracy of the available data. Data on current
abatement costs are largely available; at least more readily available than numbers on ‘lost benefits of
not being in a sustainable situation.’ Secondly, policy and decision-makers require reliable and
accurate estimates in different phases of the implementation of the WFD. On top of that, the costbased approach connects to the WFD required efficient price incentives as well as the WFD required
cost-effectiveness of the programme of measures and has the important advantage of being pragmatic
and traceable.
The calculation of environmental costs for the 2004 reporting requirements was based on available
data about environmental costs related to water from Statistics Netherlands. Statistics Netherlands
calculates these costs based on national guidelines which are in line with the international
environmental cost accounting guidelines provided by the OECD and Eurostat for environmental
protection measures. Recently, based on data from Statistics Netherlands, the same approach was
applied to provide an update of the costs recovery of water services15, including the calculation of
environmental costs (Sterk Consulting and Bureau Buiten, 2013)16.
The above approach connects to the WFD required efficient price incentives as well as the WFD
required cost-effectiveness of the programme of measures and has the important advantage of being
pragmatic and traceable, and moreover, the required information is largely available.
2. Example: assessing historical environmental and resource costs related to waste water
treatment costs
The water service ‘waste water treatment’ can be seen as the implementation of measures with the
sole purpose to reduce damage to the (aquatic) environment up to the level of existing water quality.
Therefore, all costs for wastewater treatment are seen as environmental and resource costs. And,
since we have 100% cost recovery for our water services, these environmental and resource costs are
internalized and recovered completely.
14
This illustration has been prepared by Rob vander Veeren, economist at the Ministry of Transport & Water
Management, The Netherlands. For more information on this illustration and on the Dutch experience in the
application of economics methods and tools for supporting water management, to contact:
[email protected].
15
Statistics Netherlands (2014), Economische beschrijving KRW deelstroomgebieden 2005, 2008, 2010, 2011,
Den
Haag,
2014.
http://www.cbs.nl/NR/rdonlyres/27926896-8A38-4152-9DD621DDF6857F78/0/2014econbeschrijvingKRWstroomgebiedenpub.pdf
http://www.helpdeskwater.nl/publish/pages/32460/namwa_stroomgebieden_definitief_rapport_1_maart_2014.pd
f
16
See:
http://www.helpdeskwater.nl/publish/pages/32460/kostenterugwinning_van_waterdiensten_2013_eindrapport.pd
f
11
Table 2. Total revenues and costs for waste water treatment in 2012*
Actors
Revenues
(million €)
Regional water authorities
1.284
Self services
- Industry
266
- Agriculture
66
- Households
21
Total
1.637
*Costs self services industry 2011 figures
Source: Sterk Consulting and Bureau Buiten (2013).
Costs
(million €)
Cost
recovery
percentage
1.292
99%
266
66
21
1.645
100%
100%
100%
100%
The costs included are investment costs (depreciation and interest) and operation and maintenance
costs (including labour etc). The regional water authorities who are responsible for public wastewater
treatment in the Netherlands have to make sure that they balance their budgets, since they are
allowed to make neither profits nor losses. So they are keen on making sure they recover their total
costs completely. Therefore, cost recovery rates are 100%, with annual fluctuations caused by the fact
that the levies charged are based on estimations at the beginning of the year, which often differ (only
slightly) from the actual costs incurred during the year (in the example above, this difference is 1%).
The revenues are secured by means of an earmarked levy, that has to be paid by all users of the
water service, and of which the revenues are only allowed to be spent for the purpose the money is
collected for (i.e. wastewater treatment). Also for self-services, cost recovery rates are 100% by
definition, since, if large companies want to operate wastewater treatment plants themselves, they
have to pay for it themselves (same applies to individual treatment facilities operated by agriculture
and private households).
Sources:



Hueting, R. (1974), new scarcity and economic growth: more welfare through less production?
http://www.managementissues.com/media/new_scarcity_and_economic_growth_hueting.pdf
Sterk Consulting en Bureau Buiten (2013), Kostenterugwinning van waterdiensten 2013,
Leiden, december 2013.
http://www.helpdeskwater.nl/publish/pages/32460/kostenterugwinning_van_waterdiensten_20
13_eindrapport.pdf
Statistics Netherlands (2014), Economische beschrijving KRW deelstroomgebieden 2005,
2008, 2010, 2011, Den Haag, 2014.
http://www.helpdeskwater.nl/publish/pages/32460/namwa_stroomgebieden_definitief_rapport_
1_maart_2014.pdf
12
6. Illustration 2 - Assessing environmental costs in the context of the
second river basin management cycle in France17
1 Introduction
In the framework of the cost-recovery assessment required under Article 9 of the Water Framework
Directive (WFD), there is a need to assess environmental costs. Environmental costs are damages
caused by various water uses to the environment, ecosystems and people using water as a resource
for their activity. However, environmental costs cannot be measured accurately and thus can only be
estimated.
In France, environmental costs were estimated through two complementary methodologies. On the
one hand, the costs of damages caused to the environment and ecosystems were estimated by the
costs of maintaining or restoring good water status, i.e. the overall cost of the programme of measures
(PoM). On the other hand, as damages to the environment may affect other activities, externalities
borne by water users, in the form of additional expenditures, were also estimated. These particular
costs were named ‘compensatory costs’.
2 Damages to the environment and ecosystems costs assessment
Based on the assumption that once good water status (as defined by the WFD) is reached, no more
damages affect aquatic ecosystems and water resources, the costs of damages can be well
approximated by the cost of reaching good status. Thus, France decided for the WFD 2 nd cycle to
approximate environmental costs by the total costs of the programme of measures necessary to reach
good status by 2027. The cost obtained is an indicator of the overall effort remaining to achieve good
status for all waters.
Approximating environmental costs by the total costs of what remains to be implemented also
supports awareness raising. This indicator appeared as a good way to communicate the idea of
environmental costs to basin authorities, since it is very concrete and realistic. When data are
available, the costs of pollutions / disturbances should also be assessed and explained (i.e. who
causes them, who pays for them and which ones could be avoided if preventive policies were
implemented).
The following methodology was used. In the framework of costs recovery, ‘compressible’
environmental costs should be assessed (that is to say costs that can be offset by actions thus
planned in the programme of measures up to 2027). ‘Incompressible’ environmental costs (i.e. in the
case of water bodies where the aim is not good status (good potential or less stringent objective)) are
not considered in the calculation as these are considered indirectly in the HMWB designation and less
stringent objectives analyses. The main difficulty thus consists in determining all the measures
required for achieving good status for all waters by 2027.
However, this methodology has limitations. One has to keep in mind that caculating environmental
costs through the cost of the programme of measures remains an approximation. Moreover, this
indicator should not be compared with the costs actually implemented and should not be used as a
tool for monitoring the implementation of the programme of measures proposed under the second
planning process. As knowledge improves every day, quality objectives may indeed change and new
costs sources may be identified. Consequently, the base for evaluating environmental costs is not
steady over time. In particular, if assessed through this methodology, the weight of environmental
costs may remain the same while many investments are done.
17
This illustration has been prepared by Blandine Boeuf, water economist at the Ministry of
Ecology, France. For more information on this illustration and on the French experience in the application of
economics methods and tools for supporting water management, to contact: [email protected].
13
Example of the Seine-Normandy basin
Environmental costs due to the industry
Environmental costs may be approximated by calculating the costs of actions undertaken to restore the
environment and necessary to highly reduce current pollutions.
The cost of reduction, or even cessation, of classical industrial pollutions was estimated at 55 million euros per
year for industries’ own infrastructures and at 40 million euros per year for industries contribution to the
restoration of local authorities sewage treatment plants. Overall, total estimates amount to 95 million euros per
year on average for the Seine-Normandy river basin.
Calculating the costs of the Programme of Measures : Example of water abstraction
Programme of Measures evaluation
Thanks to the analysis of the river basin characteristics, pressures on water bodies were identified. A list of
possible measures per type of pressure was elaborated at the national scale. Thanks to the water agencies “cost
databases, unit costs were calculated for each measure. Once the local basin authorities had defined the
relevant measures and the base to apply them (building in particular on the Article 5 assessment and local
knowledge), the cost of measures for a specific location/water body and a specific pressure could be calculated.
Example of water abstraction
For example, the pressure ‘water abstraction’ could be identified for several water bodies. Local authorities could
then select the measure ‘water storage’ among the list of possible measures to reduce abstractions if this
measure was seen as the most relevant measure for the specific conditions of the water body. If the total
capacity of the water storage measure would be estimated at 100 000 cubic meters, total costs of the measure
would be 450 000 € since the average unit costs for water storage was estimated at 4,5 euros per cubic meter.
Example of the Seine-Normandy basin
Environmental costs due to households
Environmental costs due to households may be estimated by the treatment costs of the whole point source
pollution generated by households (including the building of treatment plants or any other works necessary to
treat these pollutions). From of financial perspective, the efforts remaining in order to treat point source pollution
are estimated around 670 million euros per year for households. This includes an estimation of the annual
depreciation of the investments to realise in order to treat all the point source pollutions (treatment plants,
networks...).
Environmental costs due to the industry
Environmental costs due to the industry may be approximated by calculating the costs of actions undertaken to
restore the environment and necessary to highly reduce current industrial pollutions.
The cost of reduction, or even cessation, of classical industrial pollutions was estimated at 55 million euros per
year for industries’ own infrastructures and at 40 million euros per year for industries contribution to the
restoration of local authorities sewage treatment plants. Overall, total estimates amount to 95 million euros per
year on average for the Seine-Normandy river basin.
Environmental costs due to agriculture
The total amount of measures which would be necessary to undertake in order to completely suppress diffuse
pollution from agriculture was estimated at 1,6 billion euros per year in the river basin Seine-Normandy.
Therefore, it can be considered that environmental costs due to agriculture are around 1,6 billion euros.
Example of the Rhone-Mediterranean Basin
Based on extrapolations of the investments made during the first programme of measures and on hypotheses
regarding future investments, the total cost of measures in order to reach good water status in the RhoneMediterranean basin was estimated at 5,92 billion euros, i.e. 395 million euros per year.
Environmental costs were then distributed among the different users depending on the pressure origin
generating the measure planning. These amounts are transfers paid by the environmenta since the environment
currently bears the damage in the absence of corrective measure. The following table was obtained:
14
PoM
beneficiary
Measures
concerned
PoM amount 20132027 (in million euros)
Beneficiary
User
Amount (in
million euros)
Annual amount
(in
million
euros per year)
Agriculture
Pesticides
pollution
reduction
1648
Agriculture
1648
110
Local
authorities
(water
and
sanitation)
Pollution
reduction
(including
substances)
1116
Households
870
58
Industry
240
16
Local
authorities
(services and
environement)
and
agriculture
Local
and
quantitative
management
382
Households
243
16
Industry
91
6
Agriculture
48
3
Industry
Pollution
reduction
(including
substances)
1477
Industry
1477
98
Environment
Hydromorphology
1297
Industry
432
29
Agriculture
432
29
Households
432
29
As a consequence, PoM benefits (and thus a proxy for environmental costs) can be estimated for each user
category:
Beneficiary
Million euros per year
%
Households
103
26%
Industry
150
38%
Agricutlure
142
36%
3 Compensatory costs assessment
While the environmental costs previously evaluated focused on the damages caused to the water
resource and the aquatic environment (environment-centred approach), compensatory costs only
consider the impacts on other water activities (anthropocentric approach). Both approaches are thus
complementary.
Compensatory costs are costs borne by a water user due to the aquatic environment and/or the
water resource degradation caused by another water user. Compensatory costs match expenditures
spent due to a degradation – or a known threat - in order to regain and potentially maintain the initial
state of the water body or an equivalent level of human activity. For example, agricultural effluents
lead to water eutrophication. Water is then abstracted by drinking water plants that might require
additional treatment because of water eutrophication. Eutrophicated waters additional treatment costs
are thus considered as compensatory costs borne by water services because of agriculture.
Consequently, compensatory costs (for water) are part of environmental costs as defined in the WFD.
They represent in fact the most tangible part of these costs (that stakeholders and water users easily
understand) and that can be most easily calculated.
The concept of “compensatory cost” is not a concept explicitly referred to in the WFD. This concept is used in
France in order to increase knowledge on environmental impacts and related costs.
15
The word ‘compensatory’ refers to two complementary dimensions :
(1) Compensatory costs are costs spent by a user in order to compensate for the (negative)
consequences of a water resource degradation made by others (crossed-effects); and,
(2) Compensatory costs partially include costs required for restoring the state “before
degradation”. This restoration may concern the environment state (agricultural measures
financed by drinking water services in catchment area), the level of activity (drinking water
distribution observing regulatory norms) or the water use (fisher or tap water consumer
wellbeing).
Expenditures must be spent by the service or user, due to pollutions originating from other users
activities.
Moreover, compensatory costs refer to a norm for human water use and not for the aquatic
environment (in relation to good water status as defined by the WFD). The focus is for example on the
costs paid by water services to purify water for human consumption and not on the costs borne by
polluters to reduce the pressure on the environment. Therefore, they cannot be approximated by the
costs of the programme of measures like other environmental costs. One has to look at the
expenditures actually spent by other economic activities/water uses due to water degradation.
Compensatory costs are part of environmental costs and their valuation is more easily accessible. The
reliability of the costs/expenditures estimated is generally rather good. These costs are assessed with
certainty in comparison to non-market benefits (such as patrimony value). Moreover, costs presented
as euros actually spent are more understood and accepted by stakeholders than values obtained
through stated-preference valuation methodologies which are still at their exploratory phase in terms of
operational use of their results. Consequently, assessing compensatory costs in the framework of the
WFD contributes to improving the knowledge on environmental costs linked to the state of the aquatic
environment and of water resources.
In France, real-size tests on targeted territories were conducted on three thematic areas (drinking
water, the marine environment and the quantitative management of water resources) in association
with thematic and local experts18. The following main compensatory cost categories were identified:
Curative compensatory costs
Fish ladders
Complementary treatments for polluted waters for industries
Complementary treatments for drinking water (nitrates, pesticides, N and P)
Palliative compensatory costs
Interconnexions implementation for water supply
Substitution resource : change of abstraction point
Abstraction points deepening and associated treatments
Preventive compensatory costs
Incentives and subsidies to change phytosanitary practices
Subsidies to change agriculture practices
Abstraction points protection
ncreased water quality monitoring over a certain threshold (drinking water supply)
18
For more details, please refer to : « Analyse sur les coûts Compensatoires en France et en Europe dans le
Cadre de la Directive Cadre sur l’Eau (DCE)», Ecodecision, 2011
16
Example of the Rhône – Mediterranean & Corsica basin
Curative compensatory costs : example of fish ladders
In order to maintain fish stocks for leisure fishing, actions are implemented by users with the support of the water
agency to establish the right river conditions for fish. These actions mostly consist in building fish ladders and
undertaking feasibility studies. According to the water agency database, the expenditures spent for these actions
for the period 2007-2012 reach 6,2 million euros per year on average.
Palliative compensatory costs : example of interconnections for drinking water supply
In order to secure the quality of drinking water supplied to households, water supply services may need to
establish interconnections between various water sources. The investments for interconnection undertaken
during the 9th water agency programme, in particular investments targeting water supply security, were extracted
listed from the agency database. The total expenditures for the period 2007-2012 were estimated at 4.0 million
euros for the entire period.
Preventive compensatory costs : example of incentives and financial aid to adapt phytosanitary
practices
In order to prevent the degradation of catchment areas (which impacts the quality of water abstracted by drinking
water supply services), preventive actions are undertaken with users of phytosanitary products. These actions
take various forms: awareness raising, trainings, individualised advices, purchase of material avoiding pesticides
use, etc. Using the water agency database, expenditures related to these actions were estimated at 2.7 million
euros per year on average for the period 2007- 2012.
Example of the Rhine-Meuse basin
Curative compensatory costs: Complementary treatments for drinking water (nitrates,
pesticides, N and P)
All the works that have been realised in order to treat nitrates, pesticides and water turbidity were listed. The total
amount of costs was divided by the plants capacities in order to establish a reference cost. The reference cost
thus obtained was 7800 €/m3/day. This reference cost was applied to the water flow treated, which is
165515m3/day over the Rhine-Meuse basin. Therefore, the total cost of works realised in the Rhine-Meuse basin
for complementary treatments was estimated at 126 million euros. This number can be considered as the
patrimony built in order to make complementary treatments for drinking water. The annual cost born for these
installations renewal was estimated by dividing this cost by the average life time (25 years). The annual renewal
installations cost thus obtained was about 5 million euros per year.
Example of the Loire-Britanny basin
Costs borne by users to maintain drinking water quality
The compensatory costs which contribute to maintaining the quality of drinking water supplied include:
preventive measures to adapt practices in catchment areas;
curative measures such as additional treatments;
palliative measures to replace damaged water resources.
The following table summarises some compensatory costs which were calculated for the Loire-Britanny basin.
Preventive actions
Million euros per year
Definitions:
Catchment areas : agricultural practices,
Agricultural practices : 52
local authorities, economic stakeholders,
Communication and organisation
Additional treatment:
households
: 13
more treatment or
higher treatment
PUD and land acquisition
80 between 2007 and 2010
intensity
Curative actions
Additional treatments OM
47-98
PUD : Public
Additional treatments nitrates
5-7
Usefulness Declaration
(Déclaration d’Utilité
Additional treatments pesticides
45-80
Publique), used in
Palliative actions
particular to define the
Substitution resource
Investment : 0,03 (except pipes)
protection perimeters
Interconnections
Investment : 0,012
around catchment
areas
Drillings deepening
Additional treatments : 0,6
Others
OM : Organic Matter
Health costs : costs linked to bathing, water / 22
river or sea products consumption, following
up an anthropic degradation of the
environment.
The overall costs estimated are between 260 million euros and 350 million euros per year for the Loire-Britanny
basin.
17
Example of oysters purification costs
Additional costs for oyster producers
In the case of water quality degradation (bacteriologic pollution), shellfish production requires additional
purification treatments to reach sanitary norms. Such treatments imply additional costs borne by shellfish
producers.
Purification treatments consist in placing shellfishes in purification basins filled with clean water that provides
natural filtration. The area of concrete purification basins generally ranges from 50 to 100 m2 with 1m water
deep. Pumping, circulating, oxygenating and filtrating systems are also necessary. The unit cost (in euros/kg of
shellfish produced) varies depending on the oysters production range (t/year). The European project ‘Virus safe
food’ estimated purification costs at 0,8 euro / kg.
Example of PCB costs
Additional costs due to PCB pollution in the Rhone river
PCB (polychlorinated biphenyls) pollution generates many costs, in particular those associated with sediments
management. Compensatory costs are additional costs related to contaminated sediments management (i.e.
maintenance, sediments transportation, storage, decontamination,...).
In the case of the Rhone river, this additional cost was estimated between 400 000 and 800 000 euros per year,
depending on the hypotheses used for calculation.
The hypotheses for unit costs were:
- an additional cost of 25 euros / m3 for dredging in the case of a contamination;
- transportation costs of 25 cents / km for transporting the sediment to the nearby landfill;
- the quantity of sediments to be extracted ranging from 6000 to 18 000 m 3.
Example of costs borne due to bottled water purchase
Tap water is considered safe by 79% of the French population 19. Consequently, the remaining 21% can be
considered as buying bottled water for fear of sanitary risks. The average consumption of bottled water in France
is 161 l/year20. The average cost of a bottled water is 1,65€/m3. The cost borne by households due to bottled
water purchase was thus estimated at 152 million Euros over the Loire-Britany river basin.
4 Environmental costs and cost-recovery
The calculation of environmental costs provides useful information with regard to the cost-recovery
assessment. The evaluation proposed highlights the damages (assessed in monetary terms) caused
to aquatic ecosystems and the water resources, as well as the impacts on other activities.
Compensatory costs give insights into the financial transfers between users categories. Other
environmental costs underline whether users generating damages to the environment actually pay to
repair them and whether the programme of measures (with the calculation methodology described
above) is in adequacy with the polluter-pays principle. However, environmental costs do not take into
account other financial transfers between water users, in particular taxes and subsidies on water uses,
which may compensate for the environmental costs some users generate. As a consequence, these
financial transfers have to be integrated in the overall cost-recovery assessment.
19
Baromètre 2011, Centre d’information sur l’eau
20
SOeS, 2007
18
In order to account for environmental costs in the cost-recovery analysis, these costs are then
allocated to different water users categories based on the pressures they impose on the environment.
They are then integrated in the assessment of the financial transfers between users’ categories and in
cost recovery ratios. A user category ‘environment’ was created to simplify the assessment. The
overall cost-recovery analysis, integrating various taxes and subsidies, thus shows whether
environmental costs are compensated through other financial mechanisms (for example, whether the
users generating damages to the environment actually pay for repairing measures or whether financial
transfers between different users categories are (partially) compensated through the tax/subsidy
system).
Water agencies and cost-recovery
In France, water agencies collect charges on water uses in each basin. The revenues collected are then
allocated via subsidies to projects that aim at improving the state of the aquatic ecosystem and of water
resources.
This financial system contributes to the implementation of the polluter-pays and cost-recovery principles at the
river basin scale (in particular since ‘water pays for water’).
As a consequence, this system reduces compensatory costs, via taxes paid by polluters and financial support
given to other users for restoring their activity. This system also reduces environmental costs. Thanks to the
charges paid by polluters, financial resources are available to restore aquatic ecosystems even if nobody’s
activity is directly impacted by the current poor water state.
Charge levels and subsidies are defined in the 6-year intervention programme of the water agencies. This
programme is adapted to match the WFD objectives and the requirements of the programme of measures, while
contributing to the increase of cost-recovery levels.
Taxes on water uses
The following uses are taxed by the water agencies:
Tax
Tax payer
Pressure targeted
Domestic pollution
Domestic users
Point and diffuse-source pollution due to sanitation.
Non-domestic pollution
Any economic or industrial activity
entailing pollution discharge
Industrial point-source pollution.
Sewerage systems
modernization
Non-domestic and domestic pollution tax
payers
Point and diffuse-source pollution due to domestic
and industrial sanitation.
Water abstraction
Users or industrial users or farmers
Water abstraction.
Abstraction for
hydroelectricity
Any person operating a hydroelectric
plant for a volume of one million cubic
meters flowed in a year
Changes in watercourses regimes.
Diffuse pollutions
Phytosanitary products users
Diffuse pollutions due to phytosanitary products
and seeds.
Livestock farming pollution
Livestock farmers (above a livestock
threshold)
Nitrates discharges pollution due to livestock
farming.
Obstacles on watercourses
Owners of continuous obstacles between Incentive to equip these obstacles and to suppress
two riversides (above a certain threshold) those which have become useless, in order to reestablish the river ecosystem well-functioning.
Storage in low water period
People storing part of or the totality of a
river flow in low water period, for a
capacity above one million cubic meters.
Reduction of watercourses flows downstream
(perturbates aquatic life and water uses).
Aquatic environment
protection
Recreational and professional fishers.
Fishes species abstraction.
19
Bibliography :

Guide pour la mise à jour de l’Etat des lieux, MEDDTL/DEB, mars 2012

Circulaire DCE 2007/18 du 16/01/07 relative à la définition et au calcul des coûts pour
l’environnement et la ressource pour l’élaboration des schémas directeurs d’aménagement et
de gestion des eaux, Annexe II : Calcul des coûts pour l’environnement et la ressource

« Analyse sur les coûts compensatoires en France et en Europe dans le cadre de la DirectiveCadre sur l’Eau (DCE)», Ecodecision, 2011

Etat des lieux du bassin Loire-Bretagne, Agence de l’eau Loire-Bretagne, 2013

Récupération des coûts sur les bassins Rhône-Méditerranée & Corse, Quantification des
coûts et des flux financiers – Rapport, Ernst & Young, 2013

Etat des lieux du bassin de la Seine et des côtiers Normands, Agence de l’eau SeineNormandie, 2013

Etat des lieux du bassin Rhin-Meuse, Agence de l’eau Rhin-Meuse, 2013

Etude économique relative à la récupération des coûts des services liés à l’eau du district
hydrographique comprenant la Guadeloupe et Saint-Martin, synthèse de l’étude, Acteon, Eco
Logique Conseil, 2013
20
7. Illustration 3 - Assessing environmental and resource costs in the
Guadiana River Basin in Spain21
1 Introduction
The calculation of environmental & resource costs performed for the Guadiana river basin in Spain,
following the WFD cost-recovery assessment, has met with similar difficulties as the ones presented in
the French case (impossibility to perform accurate and exhaustive calculations for each part of the
basin). Therefore, despite the set of rules developed to be as precise as possible, the calculation
represents an approximation of the true state of the environment and resource costs in the basin.
On the one hand and as indicated in the plan, the environmental costs are calculated as the cost of
the measures needed to reach the good status of the water bodies, provided that the current state,
lower than good status, is caused by the use of water and linked to a water service.
For this reason, these costs are considered as a penalty rate for polluting, which total annual amount
is equal to the capital cost (annual percentage rate) of the measures to be undertaken to achieve the
good status.
According to this, the goal of the assessment of environmental cost is not the recovery of the costs of
the measures aiming to restore the environment. This cost-recovery process will take place once the
measures are put in place, accounting for the existing financial cost-recovery instruments already in
place for this purpose.
For the next planification cycle, a new methodology has been developed for assuring a homogenous
interpretation in the majority of river basins. Mainly, the definition of environmental cost is more
restrictive: the measures are just the ones related directly to one of the water services defined in WFD
article 2.38.
On the other hand, the Spanish technical instruction for water planning defines resource cost as the
opportunity cost in water scarcity situations. These costs can be estimated using payments made in
transactions for water use rights and/or transactions of irrigation lands between different uses.
2 Steps followed for the calculation of non-financial costs
1. For the environmental costs: to identify the measures within the PoM aiming to restore
the environment from a damage caused by a given water service.
For the resource costs: to identify the transactions for water use rights and/or
transactions of irrigation lands, and then make the calculation of the opportunity cost of
the resource.
2. Distribution of the non-financial costs among the different exploitation systems and
subsystems.
3. Allocation of the non-financial cost among the different water uses.
4. Calculation of the annualised non-financial costs.
21
This illustration has been prepared by Jorge Ureta Maeso, Ministry of Agriculture, Food and Environment, (Spain).
For more information on this illustration and on the Spanish experience in the application of economics methods
and tools for supporting water management, please contact: [email protected].
21
3 Environmental costs calculation
1. Following the steps mentioned above, we identify the measures within the programme of measures
aiming to restore damages caused by the water use and the water services.
Table 3. Investment and measures of the programme of measures of the Guadiana River Basin (GRB)
to take into account for the environmental costs calculations
Service
Use
Group of
measures
Measure
Investment
PM-GRBn
(M€)
Groundwater
abstraction
Bulk water supply
More than
one
Environment
restoration
Control and protection of species potentially
afected by the exploitation of dams and associated
infrastuctures. (*)
Obstacles clearance and longitudinal passage (*)
Environmental flows implementation including the
infrastructure management. (*)
Total Bulk water supply
13.51
5.67
173.04
192.22
Distribution
Waste water treatment plants (WWTP)
improvement to terciary treatment
Public sewerage
network sanitation
Urban
Point source
pollution
minimization
Waste water treatment plants (WWTP)
improvement (complementary measures)
6.10
Septic tanks adequacy
3.64
WWTP capacity increase < 2000 population
equivalent
1.56
WWTP capacity increase >2000 population
equivalent
72.74
WWTP capacity increase. Included in the Waste
water guidance draft MAGRAMA-CLM
18.87
Other measures included in the waste water
guidance draft MAGRAMA -CLM
190.20
Other measures included in the waste water
guidance draft MAGRAMA -EXT
93.00
New WWTP < 2000 population equivalent
116.16
New WWTP >2000 population equivalent
226.05
WWTP improvement to terciary treatment >10 000
population equivalent in sensitive areas
136.71
Total Public sewerage network sanitation
Sanitation outside
the public
sewerage network
Industrial /
Urban
Knowledge and
governance
Total sanitation outside the public sewerage network
Total
45.26
910.28
Staff increase for control and Management of
discharges into surface waters (*)
1.44
1.44
1,103.94
* It should be mentioned that, in the new methodology used in the second planning cycle, the measures noted above (*)
wouldn’t be considered in this analyse for valuating environmental cost, as they are not related to one specific water service
according to WFD article 2.38 definition.
22
2. The second step is the distribution of the non-financial costs among the different exploitation
systems and subsystems.
In accordance with the polluter pays principle, the environmental costs will be allocated for exploitation
systems and subsystems where the pressures leading to these costs take place. The following rules
are set:

Costs regarding bulk water supply are allocated depending on where the investments have
been done;
Costs regarding groundwater abstraction for exploitation system and subsystem. are
calculated
Costs regarding urban water services and sanitation outside of the public sewerage network
are estimated using the population rate for exploitation system and subsystem;
Costs regarding the irrigation distribution are calculated in accordance with the use of
irrigation water exploitation systems or subsystems.



Table 4. Distribution of the water use per services, exploitation system and subsystem– GRB
2005
SERVICE
Bulk water
supply
Groundwater
abstraction
Distribution
Public sewerage
network
sanitation
Ex.Sys–GRB
Central
Oriental
75%
1%
59%
Sanitation
outside the public
sewerage
network
47%
47%
13%
92%
34%
43%
43%
Alto Guadiana
74.0%
100%
90.8%
90.8%
90.8%
Tirteafuera
0.02%
0%
0.1%
0.1%
0.1%
Bullaque
25.8%
0%
9.2%
9.2%
9.2%
10%
7%
6%
4%
4%
1%
0%
1%
6%
6%
Sur
Ardila
3. The third step is the allocation of the non-financial costs among the different water uses
Once the environmental costs of the water services have been calculated, the allocation of these costs
to the different uses is made in accordance with the current water consumption of each individual use.
Table 5. Water use distribution per service and uses – GRB, 2005
SERVICE
Bulk water
supply
Groundwater
abstraction
Distribution
Public sewerage
network
sanitation
Sanitation
outside the
public sewerage
network
Urban
10%
6%
8%
100%
27%
Agriculture
88%
93%
92%
Industrial
2%
1%
USE
73%
4. The forth steps lead to estimates of annual environmental costs.
The investments costs of measures selected for assessing environmental costs are translated into
annualised costs, using the Lifespan of the investments (estimated at 50 years for investment in
23
regulation infrastructure and 25 years for the rest) and with a discount rate of 2% (representing the
opportunity costs of the resource).
4. Resource costs calculation
1. As mentioned before, resource costs defined as the opportunity cost under water scarcity situations
is estimated by the costs arising from payments made in transactions of water use rights and/or
transactions of irrigation lands between different uses. The opportunity cost is generally defined as the
benefit forgone when a scarce resource is allocated to a given use instead of other uses.
In the Guadiana river basin, transaction for water use rights has not taken place. However, there have
been takeover bids for groundwater private rights (water exploitations offering more employment and
socio-economic benefits) and transactions of irrigation lands to different uses (e.g. to thermo-solar
use). The resource cost is a concept that is difficult to calculate, depending on the market and
transactions that are taking place and used for deriving opportunity cost. The following tables illustrate
how payments in annual equivalent terms are estimated based on bids for water rights and irrigation
lands.
Table 6. Takeover bids for groundwater private rights and payments in annual equivalent rates,
GRB 2006-09
Date of the
bid
Irrigation surface
affected
(ha)
Payment
(€ base 2008)
Volumes recovered
Registered
(m3)
Real (m3)
Payments in terms of annual
percentage rates ¹
(€)
(€/m3)
1/06/2006
521,384
56.3
240,816
112,600
19,060
0.17
1/07/2007
9,832,557
1,060
4,434,521
2,085,945
359,436
0.17
2/07/2009
12,334,321
1,227
5,078,947
2,406,400
450,890
0.19
1/08/2009
11,935,786
1,281
5,117,622
2,562,000
436,322
0.17
1/09/2009
19,903,065
1,900
7,982,866
3,800,000
727,571
0.19
2/09/2009
11,940,440
1,217
4,973,604
2,433,800
436,492
0.18
Total Take
over bids
66,467,553
6,741
27,828.376
13,400,745
2,429,771
0.18
Table 7. Acquisition of terrains with private water rights associated and their transformation into
thermo- solar licensing terrains, payments for the resource in annual percentage rate; GRB 2006-09
Thermosolar plant
Surface
(has)
Annual
volume
(m3)
Total
payment
(€)
Year of
the
licensing
Average price
of the
irrigation
terrains(€/ha)
Payment for
the resource
(€)
Total Net
22
Payment
(€)
(€/m3)
Helios I
88.6
177,200
2,215,000
2007
14,536
1,287,890
33,891
0.19
Helios II
110.0
220,000
2,750,000
2007
14,536
1,598,960
42,077
0.19
Manchasol, 1
399.1
798,120
9,976,500
2008
14,198
5,665,854 157,579
0.20
Manchasol, 2
447.2
891,840
11,178,750
2009
13,693
6,122,825 184,823
0.21
1,044.8
2,087.160
26.120.250
14.675.528 418,370
0.20
Total
22
Taking into account a discount rate of 2% and a lifespan of 40 years.
24
We can conclude from the calculations made in the Guadiana river basin management plan that the
opportunity cost of the resource in water being used in irrigation for overexploited areas is around 0. 2
€ ∕ m³. For other uses, the opportunity cost is assumed to be equal to zero.
2. Distribution of the resource costs among the different exploitation systems and subsystems.
Following the polluter pays principle, the resource costs will be allocated to the exploitation
systems/subsystems that are at the origin of these costs, i. e. where the water use rights and/or
transactions of irrigation lands are taking place.
3.Allocation of the resource costs among the different water uses.
They will be allocated in turn to the water use and service concerned.
4. Estimating annual resource costs
The calculation of annual resource costs is the result of the multiplication of the unitary price of the
resource and the annual water volume per use.
5. A series of “Questions and answers”
Following the presentation by Spain at the Economics WG, different clarification questions were
raised. These are listed below, along with the answers provided by Spain to each question.
1. Do you have any information on how to assess ERC related to water services than WS, distribution
and WWT such as hydropower or navigation?
We have focused on the main water services such as water supply and wastewater treatment defined
in Art 2. Other water services have not been analysed. It should be convenient to enlarge analysis of
services beyond urban and irrigation including energy and navigation.
2. Is self-abstraction included? (for clarification)
Volumes self-abstracted from surface and groundwater are included in the water accounts for the
analysis of water resources and water demand. Thus, related costs are estimated and used in the
financial cost/income computations.
3. What is the explanation of the absence of measures targeting ground water abstraction? (for
clarification)
Such measures are included in the Programme of Measures, but these are not assigned to
environmental costs thus they are not shown in the figure. The main measures dealing with
groundwater relate to the quality and quantity control network (already in use) and the installation of
volumetric metering devices that is compulsory in most of the RBMP. Quantitative control and
common resource management (under water user associations) are also included in most RBMP for
aquifers under risk of not reaching GES.
4. Concerning environmental costs. Would it be possible to show how the presented approach
(measures - env costs, costs distribution, their allocation among users) is in practice translated into
prices/tariffs paid by users and - how the financial resources collected are then used for financing
measures?
Environmental costs are not currently paid by water users. The Spanish legislation allows to compute
water tariffs according to real (financial) costs. Thus, it is not possible for the public administration to
charge users with cost not having been effectively expended by administration. The proposal of
25
environmental costs as the difference of the cost already paid by the PoM and the future cost when all
water bodies reach GES define the environmental cost as something that 'should be paid' for in the
future. This concept, however, is not included in the Spanish legal system.
5. Concerning resource costs. Would it be possible to present an example (can be imaginative) for
points 2-4? And similar to the question on environmental costs, it could be good to present how the
costs estimated could be translated into users’ charge/tax. In another words how the system can work
in practice to help collating financial revenues.
Resource cost is defined as the real observed price paid for water resources in a basin. As Spain has
provided the possibility to trade water rights in its legislation since 2005, there are some basins where
trading can be observed directly (Guadalquivir, Almeria, Tajo, Segura) and others where it can be
estimated indirectly from transactions in the land market. In the example shown above, Guadiana
water rights were traded indirectly helping to estimate a resource cost of around 0.18-0.20€/m3 per
year. This should be used as a reference to estimate the profit from illegal water abstraction in case it
should take place. Should it be the case, illegal abstractors should be fined at least by using this value
as reference of the damage imposed on water as a public good.
6. Would it be possible to give precise examples of pressures and related measures? How have these
been chosen, what are their costs and how were these evaluated?
There are cost-effectiveness analyses developed for some river basins. A summary of the
Guadalquivir RBMP for quantitative gap reduction is detailed in: Berbel, J., Martin-Ortega, J., & Mesa,
P. (2011). A cost-effectiveness analysis of water-saving measures for the water framework directive:
the case of the Guadalquivir River Basin in Southern Spain. Water resources management,25(2), 623640. The complete description can be seen in the mentioned RBMP. The figure below presents key
elements of such cost-effectiveness assessment.
Table 8. Cost-effectiveness ratio of water-saving measures for the PoM
Water-saving measures
Improvement of urban
distribution networks
Modernisation of
irrigation systems
Service cost recovery in
urban sector
Service cost recovery in
irrigation
Volumetric billing for
irrigation
Extension services for
irrigators
Subtotal23
Strict groundwater
abstraction control
Total
Effectiveness
Reduction
Impact
in total
reduction
extractions
(Mm3/year)
(Mm3)
Annual
Equivalent
Cost (106€
per year )
CE
pressure
reduction
(€/m3)
CE impact
reduction
(€/m3)
44.99
2.19
21.61
0.48
9.87
259.51
35.26
172.18
0.66
4.88
17.59
9.58
18.55
1.05
1.94
22.46
2.20
2.41
0.11
1.10
38.26
5.90
6.20
0.16
1.05
9.78
1.58
3.82
0.39
2.42
392.59
56.72
224.77
0.57
3.96
323.11
80.38
5.50
0.02
0.07
715.71
137.09
230.27
0.32
1.68
The subtotal row points out the effectiveness of the measure ‘strict groundwater abstraction control’
which almost achieves the same reduction in extractions as the rest of the measures put together, and has a
considerably higher impact reduction.
23
26
8. In conclusion: guiding the assessment of Environmental & Resource
Costs in the context of the WFD implementation
Article 9 of the Water Framework Directive requires that Environmental and Resource Costs (ERC)
are assessed and included when assessing the recovery of the costs of water services. Furthermore,
the assessment of ERCs also plays a role in supporting the search for incentives for a more efficient
use of water resources, for selecting a cost-effective Programme of Measures and in the Cost-Benefit
analysis.
This paper summarized the main conceptual and methodological elements on ERC assessment
available in existing guidance documents developed for supporting the implementation of the WFD
implementation, illustrating methodological issues with practical applications of ERC assessments
carried out by selected MS using the cost-based approach.
When assessing ERCs, it is important to distinguish between internalized and external ERCs, and
between historical and current ERC:

When referring to environmental & resource costs, you need to clearly specify whether your
assessment investigates historical environmental & resource costs that are already
internalized (via existing financing mechanisms like tariffs for water services) or current
environmental & resource costs that remains to be internalized. While the first assessment
addresses financial costs of water services – and whether these costs are paid for by water
users at the origin of historical environmental degradation, the second assessment is
addressing the ERC requirements of the WFD;

Environmental & resource costs are an issue if you are not yet at “good water status”! If you
have already reached “good water status” for all water bodies in a given river basin district,
it is assumed that there are no current environmental & resource costs. All have already
been internalized24!

If water uses pay directly for the costs of already implemented “pressure abatement”
measures (e.g. costs of installed wastewater treatment plants) via specific financing
mechanisms (e.g. water tariffs), then you can describe the financing mechanism, assess the
rate of recovery of these costs by service users, and you can then state: historical (past)
environmental and resource costs are recovered, partially or fully (if financial cost
recovery for “pressure abatement measures” are partially or fully recovered). As
historical ERCs have already been internalized, these should be regarded as financial costs in
the context of cost-recovery assessment. This is illustrated by the approach presented by the
Netherlands, where the financial costs of reaching past (wastewater treatment) targets are
fully internalized (historical) ERCs 25;

Resource costs are an issue only when there are significant water quantity issues in your
river basin district, or when current allocations to different uses is not “economically
24
However, even when ERCs are fully internalized via the PoM, some of these costs might still be investigated
further. Some water uses might not be contributing to the costs of already implemented measures while putting
pressures on water bodies: if only some of the uses are contributing and not others, you might question whether
this represents an “adequate” contribution from users to solving past/historical environmental
problems/costs. And this is not the full application of the polluter pays principle.
25
Waste water treatment, for example, is regarded as the implementation of measures aimed at reducing the
damage to the aquatic environment up to current water quality level. Thus, all costs for waste water treatment are
seen as internalized historical ERCs. When cost recovery level is 100% for these costs, these historical ERCs are
considered as fully internalized and are financial costs.
27
optimal”. In some cases, resource costs can be a potential issue for catchments with no
current water stress under future climate change scenarios26.
Environmental costs are both the costs of environmental damage and the costs incurred by those who
use the water environment as a consequence of environmental degradation, as indicated in the
WATECO Guidance (2003). This is reflected in the approach adopted by France for its 2nd RBMP
cycle, where ERCs have been assessed through two complementary methodologies:

The costs of damages to the environment and ecosystems were estimated by the costs of
maintaining or restoring good water status by 2027 (i.e. the overall costs of what remains to be
implemented after 2021 targets are reached). With this method, it is possible to indentify the
share of costs generated by each sector, as each of the additional measures needed to
reach GES in 2027 target specific sectors –for example, environmental costs due to
households are the costs of additional treatment of point-source pollution generated by
households, the environmental costs due to industry is approximated by calculating the costs
of additional measure to reduce industrial pollution up to reaching GES, and so on. Identifying
which environmental costs are generated by each sector allows for identifying who should
recover these costs;

Damages to the environment may affect other activities and result in externalities borne by
water users in the form of additional expenditures: these so-called compensatory costs were
also estimated. On a more practical level, compensatory costs match expenditures by the user
or the service provider (e.g. water supply companies) due to degradation –or to a known
threat- in order to regain and potentially maintain the initial state of the water body or an
equivalent level of human activity. Compensatory costs are involved in curative, palliative and
preventive actions. Whereas the costs of degradation are approximated by the costs of
additional measures, compensatory costs are actual expenditures made by other economic
activities/ water uses due to water degradation. They thus represent the most tangible part of
environmental costs, a part that stakeholders can easily understand and that is easy to
calculate.
Moreover, the results of the assessment of compensatory costs will be useful when assessing the
benefits that result from the implementation of the programme of measures (proposed for the second
RBMP or for achieving good water status). Indeed, if water status improves, these costs will not take
place anymore/will be “avoided”. And these avoided costs represent then benefits from water status
improvement. Thus, the results obtained from the assessment of compensatory costs can feed into
“disproportionate cost” assessments aimed at justifying time and/or objective exemptions.
Depending on your context, you can undertake different assessments when applying the cost-based
approach, which approximates ERCs with the costs of additional measures needed to reach
GES, whenever the water status expected by 2021 is lower than good ecological status. In the context
of WFD implementation, ERCs assessment is needed as part of cost-recovery calculations. When
doing this, some elements need to be taken into account:
o If water bodies are not at “good water status”, and if there are no financing mechanisms
for collecting financial resources from water uses currently putting pressures on water
bodies, then you can state: current environmental & resource costs are not recovered.
o If water uses already pay water-related environmental taxes or charges, then you can
state: there is some recovery of current environmental and resource costs. Similarly to
the previous option, you can also identify water uses not paying environmental taxes or
charges while putting pressures on water bodies: if only some of the uses are contributing
and not others, you will question whether this represents an “adequate” contribution
from users to solving current environmental problems/costs, bringing practical
evidence and justifications. This situation is clearly not equivalent to the full application of the
polluter pays principle.
26
In some cases, wáter scarcity might not be an issues, but you might still have some resource costs linked, for
example, to past unefficient allocation of wáter permits, or related to climate change.
28
o You can also compare the financial revenues collected via existing financing
mechanisms/economic instruments with the estimated costs of the future programme
of measures that is required for achieving good water status (note: this is usually not the
same as the programme of measures you will adopt in the second River Basin Management
Plan (RBMP)). This will highlight how far you might be in fully recovering (internalizing) current
environmental and resource costs based on the existing financing/economic instruments. If all
financial revenues collected do not recover the costs of the programme of measures
required for achieving good water status, then you can state: there is some recovery of
current environmental and resource costs (and you can provide the overall recovery
level). You can also compare the current payments made by agriculture, households and
industry and compare them with the costs of the measures proposed for reducing pressures
from these three sectors. You will then question whether this situation represents an
“adequate” contribution from users to solving current environmental problems/costs,
bringing practical evidence and justifications.
29