Disproportional Costs and Exemptions to the Environmental Objectives under the Water Framework Directive,
Article 4.4 – 4.6

Input Paper for the workshop on 10/11 April 2008 in Copenhagen, DK

Version 3

Ingo Bräuer – Ecologic / Berlin

Thomas Dworak - Ecologic / Vienna

DISCLAIMER

This background paper has been prepared by Ecologic on behalf of the European Commission – DG Environment D.2 , with the aim to support the CIS-workshop on the 10/11 April 2008 in Copenhagen, Denmark. The views expressed in this report are the sole responsibility of the authors and may not in any circumstances be regarded as stating an official position of the European Commission or individual MemberStates. It is not an official Common Implementation Strategy (CIS) document.

The information compiled in this paper is subject to rapid change. The information presented is the status as of End of March2008.

Table of Content

Table of Content

1Introduction

1.1Background

1.2Aim of the workshop and case Studies submitted

2State of play of discussions

2.1Agreed general principles related to disproportionality

2.2Open issues identified in 2007 for further discussion

3Topics for discussion

3.1General Approaches

3.2Difference between 4.4 and 4.5

3.3Cost of inaction (lost benefits)

3.4Alternative financing mechanisms

3.5Affordability

3.6Social and economic costs and cost recovery

3.7Scale

3.8Transparency

4References

5ANNEX I: Case Studies

1

1Introduction

1.1Background

In June 2005, the Water Directors (WD) endorsed a paper on the environmental objectives under the Water Framework Directive (WFD). This document introduced key elements regarding the environmental objectives of the WFD. In November 2007, the WD endorsed in addition to the previous PolicyPaper on Environmental Objectives on the application of Article 4.7 for newmodifications a third document dealing with the exemptions onextension of deadlines (4.4), the setting of less stringent objectives (4.5) and temporarydeterioration (4.6)[1]. The discussion of issues related to disproportionate costs continuesin the framework of the Common Implementation Strategy in 2008 as it needs further refinement.

The WFD does not explicitly refer to any specific methodology when defining disproportionate costs. The practical implementation of the concept by the Member States may offer a range of possible interpretations. After the meeting of the drafting group on Environmental Objectives and Exemptions in April 2007, it became clear that the main point of discussion is whether and how to include the concept of "ability to pay". In addition, several other questions raised in 2007 were translated into discussion documents for the Water Directors for their meetings in June 2007 and November 2007. It was agreed that further guidance at the European level is needed on the issue of disproportionate costs. At their meeting in Lisbon in November 2007, the Water Directors raised a number of important points, which directly relate to the application of disproportionality. They requested that case studies be collected dealing with these issues. In particular the following topics should be addressed in the case studies:

  1. Examples on which grounds the costs of measures might be spread.
  2. Examples on the difference of assessment between 4.4 and 4.5 as far as the concept and the depth of the assessment of disproportionality.
  3. Examples of the different scales on which disproportionality is applied and their interrelation.
  4. Examples of cases where the issue of affordability is relevant.
  5. Different approaches and mechanisms in the Member States for securing the necessary financing for the first river basin management plans.
  6. Examples on the costs of non-action [and how these will feed into the decision making process].
  7. Examples in which social and economic effects play a role in applying the principle of cost recovery of water services.
  8. Examples on the transparency of decision making (what data will be made public etc).
  9. Others

At the last meeting of the Drafting Group, while analysing the available case studies, it was decided to add an additional category.

  1. General approaches

1.2Aim of the workshop and case Studies submitted

The main aim of the Copenhagenworkshop is to discuss the different strategies and the practical applications of possible exemptions by means of concrete cases and examples.

This discussion paper aims at feeding into the discussion atthe workshop by outlining the state of play of the discussions and introducing the above mentioned set of issues formulated by the Water Directors and the related case studies.

Following the request of the Water Directors, several Member States have provided examples on the assessment of disproportionate costs when applying exemptions. A total of 20 case studies have been submitted on ongoing research projects relevant to the issue, stemming from six countries (DE, DK, ES, FR, SE, UK) and the Navigation Task Group.

Table 1 gives a short overview of the submitted case studies to be presented at the CIS workshop in Copenhagenand their respective input for the different topics.

Table 1: Overview of the case studies submitted to be presented at CIS Workshop in Copenhagen.

Status: 19-03-08

Case study / Session*1 / Topic*2 / Country / Organisation / Title
DE1/2 Affordability criteria & qual.-CBA / Plenary / 4 / DE / Methodology for the Assessment of Actors’ Ability to Pay & Qualitative Cost-Benefit-Analysis
DK1: BT for Roskilde / Plenary / 3
10 / DK / FOI / Cost estimation procedure and use of benefit transfer – Case of Roskilde Fjord
DK2/3: Cost of Non-Action, Odense & Practical Guidelines / A1 / 3
6 / DK / NERI / Environment Centre Odense / Cost of no action and scale– case of OdenseRiver, Odense, Denmark & Issues in relation to the development of practical guidelines on disproportionate cost analysis based on experiences from CBA case study in OdensePilotRiver Basin (Lake Nørre Søby)
ES1: JalónRiver / A2 / 4 / ES / Environment Ministry – Ebro river basin Confederation / Economic analysis of Jalón river basin programme of measures
ES2: FinancingSerpisRiver PoM / A1 / 5 / ES / Environment Ministry – Jucar river basin Confederation / Economic analysis of Serpis river basin programme of measures
ES3/4: Groundwater and Hydropower Use / B2 / 4, 7 / ES / Environment Ministry – Segura river basin Confederation / GuadalentínValley overexploitation of groundwater resources
& Hydrological impacts due to hydropower water use on Miller Hydropower Station. Example of economic effects of alternative means
FR1/2: Alsace Aquifer & Comparison of PoMs / B1 / 4 / FR / French Water agencies / Alsace Aquifer & Comparison of PoMs at the scale of Loire Bretagne basin
FR3 CBA on GardonRiver / A1 / 6 / FR / Ministry of ecology / Cost benefit analysis on the Gardon river
NTG: Residual Lifetime / B1 / 4 / Navigation Task Group / Examples of affordability considerations relating to commercial and recreational navigation
SE: Stockholm Archipelago / B2 / 4 / SE / Swedish Environmental Protection Agency / Costs and benefits from reduced eutrophication in the Stockholm archipelago
UK1: Water Bills / A2 / 5 / UK / Defra / Cases where it is disproportionately expensive to meet standards because of the distributional consequences (affordability of water bills). Elements from WWF will be included.
UK 2: P removal at STW / plenary / PM / UK / Environment Agency / PM
UK3: Mercury / plenary / 3 / UK / Environment Agency / When is it disproportionately expensive to cease or phase out emissions, discharges and losses of the priority hazardous substance Mercury in dental surgeries?
UK4: Firm Level Issues (formerly P in detergents) / B2 / 1 / UK / Defra / Consideration of firm level issues in setting water body exemptions to avoid adverse competition and distributional consequences (formerly P in detergents, but will be adapted, also on the basis of input of WWF)
UK5: Costs of Non-Action Scenario Comparison / plenary / 6, 10 / UK / Defra / Illustrating the costs of non-action (or delayed action) in relation to programmes of measures
UK6: public budget constraints (tbc) / A2 / - / UK / Defra / PM

*1 Sessions are: plenary: general approaches

A1: costs of inaction; A2: financing mechanisms

B1: affordability1; B2: affordability2

*2 See topics requested by Water Directors at their meeting in Lisbon (chapter 1.1). The focus is the topic indicated in bold.

2State of play of discussions

During their Lisbon meeting the Water Directors discussed openly several key points with respect to disproportionality. On several issues they achieved a general agreement. They also agreed on certain aspects that needed further discussion by means of case studies. Whilesection 2.1list these general agreed principles again, section 2.2 outlined the list of issues that need further discussion.

2.1Agreed general principles related to disproportionality

The EC Water Framework Directive (WFD) introduced several innovations into European water policy, including the integration of economic approaches (e.g. water pricing, cost-effectiveness analysis) and principles (e.g. the polluter-pays-principle). Economic considerations are also considered to play a role in justifying exemptions from the overarching aim of the Directive, i.e. to achieve good status of all water bodies by 2015. If reaching this objective in time should be disproportionately costly, either the 2015 deadline may be extended, or the objective may be relaxed. However, the practical interpretation of the terms “disproportionately costly” remains unclear. It has been agreed, that ultimately, judgement of the disproportionality of costs is a political decision. For that reason, a transparent decision making process has to be guaranteed. In this context an economic analysis plays an import role in helping to make the necessary judgements. Such an economic analysis should consist of an analysis of the costs and benefits of a measure or a group of measures.

From the beginning of the CIS process the role of an analysis of the costs and benefits of a measure in the light of disproportonality has been discussed.

Considering the uncertainty around estimates of costs and benefits, it was agreed in the WATECO guidance (p. 193[2]) that:

Disproportionality should not begin at the point where measured costs simply exceed quantifiable benefits;

The assessment of costs and benefits will have to include qualitative costs and benefits as well as quantitative;

The margin by which costs exceed benefits should be appreciable and have a high level of confidence;

In the context of disproportionality the decision-maker may also want to take into consideration the ability to pay of those affected by the measures and some information on this may be required.

During the further discussion following the approval of the WATECO guidance document the following issues have also been agreed[3]:

First of all, it should be kept in mind that the WFD is an environmental directive and exempting from its objectives should not be the rule but exceptional. At the same time it should not be forgotten that exemptions are an integral part of the environmental objectives set out in Article 4 and the planning process, as already stated in the document on environmentalobjectives.

A wide range of social, economic and environmental costs and benefits may be associated with the achievement of good status and need to be considered. Member States may use qualitative, quantitative or monetised information on costs and benefits, or any combination of these types of information, to help make the necessary judgements.

An economic analysis for the disproportionality decision, should address the distributional impacts (who pays what) of the measures.These distributional effects shouldbe linked to requirements of Article 9 on the cost recovery of water services.

The way in which information is used for the disproportionality assessment should be clear and transparent.

The margins by which costs have to exceed benefits to call something disproportionate will depend on the level of uncertainty of the disproportionality assessment.

2.2Open issues identified in 2007 for further discussion

In the Lisbon meeting in November 2007, the Water Directors discussed openly several key points related to disproportionality. As a result several aspects have been agreed (see above) but certain aspects need further discussion by means of case studies. These issues are mainly related to the issue of "distributional consequences" and "ability to pay"[4]

The concept of "distributional consequences" and "ability to pay" are issues discussed in many Member States in the preparation of the river basin management plans under the WFD. However, the Water Framework Directive does not introduce any of these concepts and termsexplicitly. Three issues, in particular, are subject of ongoing discussion. The following questions have been identified in the run-up to the Water Directors' meeting in Lisbon to be debated[5]

1)What is the role of distributional consequences in the argumentation for an exemption?
In brief,two different views can be summarised:

Negative distributional consequences are never a sufficient argument in itself to apply for an extension of the deadline. Only economic criteria(the costs of achieving the objectives will exceed significantly the benefits) should be used.

Costs and particularly benefits are considered to be difficult to quantify. Focusing on “distributional consequences” and “ability to pay” is seen as a more feasible and sometimes pragmatic option, especially in the first planning cycle and when the inclusion of distributional consequences is based on a sound and coherent methodological approach.

2)Is there a difference between Article 4(4) and 4(5) in dealing with distributional consequences?
In brief two different views can be summarised:

Recital 29 of the WFD gives leeway to the idea that Member States may use distributional consequences in the application of Article 4(4). As Article 4.5 refers to a lower objective instead of a phased implementation, it does not allow for taking into account negative distributional consequences.

On the opposite some argue that Recital 31 contains elements indicating that distributional consequences could be used for setting less stringent objectives (Art 4.5).

3)What is the role of the public budget in the discussion of ability to pay/distributional consequences?
In brief two different views can be summarised:

The total costs of an investment programme and its potential ‘affordability’ as part of the public budget are not part of the assessment of disproportionality.

The use of distributional consequences to prove disproportionality is not only limited to certain sectors but also true for the set of measures financed by the public budget.

Based on the case studies from the different MS (presented below) the above mentioned issues will be discussed in more detail at the workshop in Copenhagen.

3Topics for discussion

The following section reflects the main issues to be discussed in the workshop. They are in line with the topics for discussion as requested by the Water Directors, but not all requested topics will be dealt with in separate sessions. Sometimes there were no case studies submitted on a certain topic, and sometimes certain topics seemed to be overlapping and have been combined into one session. A general description of thetopic is given below, as well as a short description of the relevant case studies reported by the MS. In addition, per topic a set of questions is included, which might be helpful for the workshop participants in preparing the sessions. A more detailed description of all case studies can be found in the Annex I.

3.1General Approaches

Topic:How to apply disproportionality in practice?

Besides some specific issues related to disproportionality which will be addressed in the different sessions A1 (costs of inaction), A2 (financing mechanisms), B1 (affordability 1) and B2 (affordability 2), there are several aspects relating to general approaches in Member States when applying the assessment of disproportionate costs.

These aspects include questions relating to scaleand the use of pre-screening approach. Scale issues relate to whether large scale national assessments can be used for decisions on water body or river basin level. But also the other way round. The use of pre-screening at a water body/river basin level means that reference values are essential. Hence values of marginal costs and benefits have to be compared among water bodies.

The three presentations on this topic will outline the general approach taken by three Member States on how to undertake a timely and feasible assessment on disproportionate costs.

Case studies:

Germany will demonstrate methodological considerations on (i) how to use affordability at different scales and (ii) how to undertake cost benefit assessments under limited data availability (“Qualitative Cost-Benefit Analysis”). The case study “Affordability criteria” will not only assess, what are appropriate criteria, but also investigate which of the criteria can be used for a pre-screening.

DK will raise the issue of the calculation of costs and use information from their case study on cost estimation procedure and use of benefit transfer for the Roskilde Fjord.

Finally the UK will present their general approach, also based on information on the case studies “Mercury in dental surgeries”, “Phosphorous removal from sewage treatment works discharges” where national benefit estimate have been allocated to waterbody scale and “Costs of Non-Action a Scenario Comparison” where the costs of non- or delayed action in relation to programmes of measures are illustrated.

Session: Plenary

Possible questions to be addressed at the workshop:

  • Are there some common elements in the presented approaches?
  • Are there elements in the presented approaches that could be useful for other MS?
  • How to make best use of available data and studies, e.g. application of benefit transfer techniques?
  • How is information on costs and benefits translated from water body scale to the national/regional level and vice versa?

3.2Difference between 4.4 and 4.5

With regard to the difference between Art 4.4 and Art 4.5, the WD identified two elements, see topics 1 and 2 below:

Topic1: When completing the improvements within the timescale would be disproportionately expensive, for what reasons and how may the implementation of measures be phased?

The Water Directors support the idea that Member States may phase the implementation of measures to spread the costs of the implementation, but there is the need for clear and demonstrable action in the first cycle.

Case study:

A case study submitted by the Navigation Task Group [NTG] on “Residual Lifetime” provides examples of cases where the issue of affordability may be relevant with regard to decisions on extended deadlines.

Session:B2

Possible questions to be addressed at the workshop:

-How is it shown that completing the improvements within the timescale would be disproportionately expensive?

-How is the residual life of physical assets be taken into account?

-How can certain measures be aligned with already planned measures?

-How is it shown that there is no further deterioration of status?

-How to deal with upstream-downstream issues, in particular in transboundary cases?

Topic2:It has been agreed that there is a difference in the analysis of 4.4 and 4.5, but how does this materialise?

Even though is not explicitly indicated in the WFD that disproportionality should be addressed differently in 4(4) and 4(5), it can be argued that both articles are of different nature. While Article 4(4) is more or less dealing with a later implementation of the objectives of the WFD, Article 4(5) refers to lower objectives. Hence, decisions based on Article 4(5) question the overall goal of the WFD.

It has already been agreed that the relationship between both types of exemptions is not a hierarchy in thesense that Member States must prove that one is ruled out before considering another. Member States are free to apply either exemption, provided the relevant exemption tests are met.However, the conditions for setting less stringent objectivesmight require more information and in-depth assessment of alternatives than those for extending the deadline. For this reason, there should be a stepwise thinking process for considering what sort of exemption may be most appropriate[6].