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Aqua Publica Europea event
Assessment of cost recovery through water pricing
Gorm DigeTerritorial environment, policy and economic analysis
([email protected])http://www.eea.europa.eu/publications/assessment-of-full-cost-recovery
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From the 2012 Water Eurobarometer
• 70% of Europeans realise the seriousness of water-related problems and support stronger EU action
• 84% of consumers support charges for the volume of water they use
• 12% disagree with pay-more-if-you-use-more-principle
• 57% explicitly call for a fairer pricing policy
• 47% want stricter water regulation
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Challenges
Article 9 of Water Framework Directive (WFD) – cost recovery of water services taking into consideration environmental and resource costs (ERC)
Blueprint to safeguard Europe’s water – enforce water pricing/cost recovery obligations under WFD including metering when relevant
Are Member States ready for the challenge?
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Purpose of this study
• Collates practical information on current state of water pricing in Europe
• Cost recovery of water services including ERCs
• Addresses issues of incentives, affordability and social equity
• Selected countries: Croatia, England, France, Germany, the Netherlands, Serbia, Scotland, Slovenia, Spain and Wales
• Recommendations - development of pricing models and water pricing reporting
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Pricing of water serve as policy instrument to achieve:
• Cost recovery - financial recovery of water supply (including investments in infrastructure, operation and maintenance) and water use-related environmental and resource costs
• Incentives - conserve water and promote water efficiency
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Water prices can be charged in many waysWater service Pricing mechanism Cost types covered*
Water abstraction Tax or charge E&R E&R Water trading
Water supply/consumption Water price / tariff C&I; O&M Tax on water use E&R
Sewage Sewage charge C&I; O&M Waste water treatment Waste water charge C&I; O&M Water pollution Water pollution charge/tax E&R Quantitative water management
Water system charge C&I; O&M
* C&I: Capital and Investment costs; O&M: Operational and Maintenance costs; E&R: Environmental and Resource costs.
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Is water consumption reactive to water price changes?
Country Region Method Elasticity of demand for water Notes Sources
Spain North-west Regression (OLS) -0.14 to -0.17 1993-1999
Marginal price -0.34 Beyond a minimum
-0.20 Consumption in summerFrance Gironde Regression (OLS) -0.17 1975 Point (1993) in
(Nauges, 1999)
Country Regression (OLS) -0.10 to -0.20* 1975- 1980- 1985-
-0.25 to -0.35** 1990Country Regression (OLS) -0.12 1989
-0.32* - 0.31** 1995Yerres Basin Regression (IV) -0.31 1995 (Le Coz, 1998)
Gironde Regression (IV) -0.08 1990 to 1994 (Nauges et al., 1998)
Moselle Regression (IV) -0.22 1989- 1993
Regression (Panel) -0.23 1989- 1993
Greece Athens Chronological regression series (macro elasticity) -0.4 small consumers
Consumption Band <15 m3
-0.8 large consumers >60 m3
Cyprus Water demand model -0.79 (for the lowest 10% of incomes)
-0.39 (for the highest 10% of incomes)(Hajispyrou et
al., 2001b)
(Martinez-Espiñeira,
2000)
(Boistard, 1993)
(Pouquet and Ragot, 1997)
(Azomahou, 2000)
(Ghini, 2000)
Source: www.planbleu.org/publications/fiuggi_cemagref_eng.pdf
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Source: Grafton et al., 2009
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Evidence of water pricing schemes providing incentives to reduce household water use
Czech Republic:• Between 1990-2004 the water and wastewater tariff for
households increased from 0.8 to 48 CZK/m3. Fees increased for the extraction of both surface, ground water, and discharge of waste water. Household consumption decreased by 40% from 171 litres per capita per day in 1989 to 103 litres in 2002
Denmark:• Between 1993-2004 real price of water (including
environmental taxes) increased by 54 %. This has led to a substantial decrease in urban water demand from 155 to 125 litres per person per day, one of the lowest levels in OECD
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Water pricing schemes to recover costs in water and wastewater servicesCountry
Water pricing structuresDrinking Water Sewage/Sanitation Irrigation
England and Wales
Households: fixed + rateable value (if unmetered) OR fixed
+ volumetric
Industry: fixed + volumetric
Households: fixed + rateable value (if unmetered) OR fixed +
volumetric
Industry: Small users pay volumetric; large users pay fixed
+ higher volumetric rate
Abstraction charges (fixed + volumetric) apply
Scotland
Households: fixed (based on tax bracket)
Industry: fixed + volumetric (based on size of meter)
Households: fixed (based on tax bracket)
Industry: fixed + volumetric (based on size of meter)
Only abstraction charges apply
The NetherlandsHouseholds: fixed + volumetric
Industry: fixed + volumetric
Households: fixed (based on size)
Industry: variable (based on pollution units)
Farmers using piped water are treated as business customers (industry); farmers using groundwater pay a groundwater charge; farmers using surface water pay nothing
GermanyHouseholds: fixed +volumetric
Industry: fixed +volumetric
Households: fixed + volumetric + runoff charge based on land
cover
Industry: N/A
N/A
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Cost recovery levels (water/sanitation tariffs)
Note: For FR the estimated cost-recovery levels are evaluated together and should be 83% (median level) and not 138% as reflected in the table
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Some issues related to financial cost recovery
• Difference in assessment methodologies including cost elements considered
• Operation and maintenance costs recovered from water users in most countries/sectors – not the case for investment costs
• Data on cost recovery are not homogenous across and within countries – and not always easily accessible
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ERCs and cost recovery
• Variability in the way Member States define and account for externalities in practice
• Most MSs examined consider ECs by charging water polluters for purification of wastewater and for untreated pollution discharged in surface waters
• RCs to a lesser extent considered by setting charges on water abstraction, construction, operation, and maintenance of water storage facilities
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Examples of revenue figures collected from env. taxes for water services
• New requirements in WFD Article 9 – not affect mechanisms put in place for recovering ERCs as indicated in total revenues
• Absence of drastic changes in revenues from env. taxes - indicating no additional efforts to internalise ERCs
(000s Euros)
2005 2006 2007 2008 2009 2010 2011 2012
Germany (all Länder) 339,480 289,140 269,330 254,040 - - - -
France (all agencies) 1,789,300 1,665,800 1,730,400 1,876,200 1,838,700 1,959,600 2,044,700 2,084,000
Spain (ACA) 326,110 336,967 322,127 347,518 366,420 - - -
UK (EA) 119,400 114,300 184,500 188,900 200,000 200,600 194,300 196,700
Scotland (SEPA) 12,728 13,940 16,954 18,867 19,452 19,082 19,459 19,929
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Proposed options for reporting ERCs
• To ensure EU wide implementation of cost recovery principles - comparable systems for reporting of utility costs and revenues
• A system is needed that indicates what areas of ERCs are covered
• Benchmarking initatives are one promising option for such a reporting instrument
• Proposed reporting sheet for assessment of inclusion of environmental and resource cost in cost recovery (p. 103)
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Affordability levels for drinking water supply and sewage and wastewater treatment services
Country
Affordability for the household sector [% of disposable income]
Drinking Water Supply Sewage and Wastewater Year
England & Wales 1.09 1.21 2009/2010
Scotland 0.96 2010/2011
The Netherlands 0.6 1.00 2009;n.d.
France 0.42 0.38 2009/2010
Germany 0.55 0.68 2010
Slovenia 1.4 0.2 n.d.
Spain (Catalonia) 0.52 2010
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Do water pricing schemes account for social concerns?
• In each examined MS affordability taken into account. A variety of systems are found
• Water authorities in some MSs perform periodical pricing studies - comparing family income with water bill
• Some MS specify means to achieve affordability others leave this unaddressed
• Artificially low water prices not the best way to ensure affordabilty – risk of underfunded service providers....
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Example of means for achieving affordability
• Via reductions in service charges
• Social welfare allowances earmarked for the payment of water services
• Water charges pegged to the value of the house (e.g. England, Wales, Scotland) and special tariffs
• Sewage charge remission for households (e.g. the Netherlands) that cannot afford to pay
• A remission for the purification, pollution and water system charges is also possible
• Support through social welfare – includes an allowance for the cost for water service (e.g. Germany)
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In conclusion - ways forward for pricing schemes
• A substantial part of the water bill is variable
• Volumetric or increasing block rates are used - metering indispensable
• Rates or rules for calculation fixed in a transparent way
• Rates high enough for water suppliers to invest in improvements
• Affordability addressed through social measures - not by reducing water price incentives (such as reduced VAT rates)
• Regional variations in e.g. water scarcity reflected in water prices
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Please do not hesitate to ask us!
Contact the European Environment Agency for information
http://www.eea.europa.eu
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ERCs – the two attempts from Common Implementation Strategy (CIS)
WATECO group (2003):• Environmental costs: damages incurred by
ecosystems and people as a result of water use...
• Resource costs: occur only when the resource is used beyond its natural regnerative capacity...(overexploitation)
DG ECO2 group (2004):• Environmental costs: env. damage costs of aquatic
ecosystem depletion (e.g. pollution)....
• Resource costs: only arise if alternative water use generates a higher economic value......(misallocation)
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Financial cost recovery (agriculture - where irrigation water tariffs are in place)
Country Cost recovery levels Year
Netherlands 99% (figure including all sectors, i.e., domestic and business users
including farmers)
2010
France O&M costs: 100%
Investment costs: 15 – 95 % (Average: 55%)
Arcadis, 2012
Spain (Guadalquivir) RBD)
49,78% 2005
Cyprus 51% Arcadis, 2012
Greece 54% Arcadis, 2012
Italy 20 – 30 % (South)
50 – 80 % (North)
Average: 50%
Arcadis, 2012