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European Commission
DG Environment

How to make economics operational for the Water Framework Directive?

Preparation of the guidance document

Summary of activities of the WATECO working group

Background

The following notes have been prepared by experts from the French Ministère de l'Aménagement du Territoire et de l'Environnement and the European Commission, DG Environment that are leading the activities of the Water Framework Directive - Economics (WATECO) working group.

The general content of these notes have been discussed and agreed during the 4thWATECO group meeting that took place October 17 & 18, 2001, in Bruxelles. The notes deal with the following issues:

  • The WATECO group: progress, preliminary output and follow-up

The first note summarises the activities that have been undertaken so far by the WATECO group. It describes the preliminary output of this group, stressing the practical and pragmatic approach that has been chosen to ensure the final output effectively serves the needs of the Water Framework Directive. Forthcoming activities of the WATECO group are then described.

  • Draft outline of the guidance document on the economic elements of the Water Framework Directive

The draft outlines summarises the key elements that will form the guidance document. Attempt has been made to include a wide range of tools and explanations that will help experts to supervise or to undertake the economic analysis as part of the development of river basin management plans. Clearly, the importance of each element and the final structure of the guidance will depend on the format of the guidance document (electronic/internet-based that provides more flexibility or paper copy that has stricter limit in the amount of information that can put together into a common document).

  • Scoping in the Ribble

The third note presents the activities and results of a scoping exercise undertaken by the Environmental Agency in the UK in an attempt to assess the relevance and practicality of the overall economic analysis proposed for the Water Framework Directive. This scoping exercise integrates economic issues with information and consultation issues, thus bridging Article 5 and Article 9 of the Water Framework Directive.

  • Testing in the Scheldt

The fourth note presents activities developed by the experts of the WATECO group of the 5 parties of the Scheldt river basin (Bruxelles, Flanders, France, the Netherlands and Wallonia) for testing key elements of the overall economic approach. Similar to other scoping and testing case studies, the main objective is to assess the feasibility and practicality of the proposed approach, and better identify what minimum requirements, best practices and 2004 requirements can be.

The WATECO group

Progress, preliminary output and follow-up

Introduction

The Water Framework Directive - Economics (WATECO) working group started its activities around 10 months ago. The main objective of this working group is the development of guidance on the economic elements of the Water Framework Directive (mainly Article 5 and Annex III[1]) that are required at different stages of the development of the river basin management plans.

The present note presents the WATECO group as it exists today, its activities and preliminary output. It also identifies a series of issues identified by the group as key policy issues that require discussions within a wider context than the working group activities per se, i.e. in interaction with other working groups or in the strategic group. Finally, the note presents the steps forward to the final draft guidance to be presented to the water directors during the Spanish Presidency.

The WATECO group today

  1. The Members

The WATECO group has approximately 40 permanent members, i.e. mainly experts from EU member states, but also 3 experts from candidate countries (Lithuania, Hungary), 2 experts from focal point organisations in Central and Eastern Europe[2] and 4 stakeholder representatives (2 from water service suppliers associations, 2 from environmental NGOs).[3]

  1. The activities

Activities entirely dedicated to the tasks of the WATECO group include:

  • A series of working meetings (4) for discussing specific issues and background papers and planning activities for the group or in collaboration with other working groups of the Common Implementation Strategy
  • The development of a series of papers and information sheets, some of these being now finalised
  • The organisation of a workshop (end of May 2001) for sharing preliminary output and discussing with/getting feedback from a wide range of stakeholders
  • The launching of scoping and testing activities in several Member States (Germany, Greece, Spain, UK, Sweden, France, Portugal…) and in one international river basin (i.e. the Scheldt, see note below). These tests are aimed at assessing the feasibility of the proposed approach, looking in details at the information available today for undertaking the economic analysis. [4]
  1. Interacting with other working groups

Efforts have been dedicated to linking activities of the Heavily Modified Water Body (HEAVMOD) group and WATECO group. Participation in each others meetings has been completed by 2 specific workshop, the first one on the key elements of the designation process of heavily modified water bodies, the second one on testing this process in a limited number of heavily modified water body case studies. To identify joint activities with the Impacts and Pressure (IMPRESS) group has been started (participation in each other meetings). Similarly, contacts have been established with the sub-group on participation of the group Best Practices in river basin planning (BESTPRACT).

  1. Preliminary output

So far, preliminary output include[5]:

  • Two papers agreed, i.e. which role for economics in the Water Framework Directive, which general approach for the economic analysis. These papers will shortly be available in the 11 languages of the EU for wider dissemination in EU Member States.
  • The workshop with stakeholders and its synthesis
  • A draft guidance document and its outlines (see next note with the draft outlines of the guidance document)
  • A series of information sheets for guiding the scoping and testing activities. These information sheets that still need to be finalised (e.g. what are minimum requirements, what are best practices) will be the basis for the content of the toolbox of the guidance document, taking into account the results of the scoping and testing activities. A separate information sheet is currently being developed on the minimum requirements and best practices for the 2004 deadlines[6].

Also, input has been provided to the paper endorsed by of the HEAVMOD group on the appraisal process for designating heavily modified water bodies.

Making the economic analysis operational: selected issues

The work done so far by the WATECO group has led to the identification of a series of issues to be faced while making the economic analysis operational. These issues are listed below, many of these being indeed at the interface between economics and other disciplines.

  1. Analytical issues

At which scale should we assess economic variables – scale and (dis-) aggregation issues are seen as key to the economic analysis and the identification of minimum requirements and best practices. Clearly, scale issues cannot be considered from a purely economic point of view. Interaction with other working groups is required to ensure appropriate scales are defined building on the interaction between water body, pressures, measures and economic sectors.

Assessing effectiveness of measures – undertaking cost-effectiveness analysis requires understanding both costs and effectiveness, a clearly non-economic issue. Assessing the effectiveness of a wide range of measures remains a key challenge to be tackled in the context of the common implementation strategy. Key questions include how to assess the impact of a given measure on a wide range of qualitative, quantitave and ecological parameters or how to assess the effectiveness of a combination of measures (see possible synergies).

  1. Policy issues

How to define compliance – a key step in the cost-effectiveness analysis and indeed in the development of the river basin management plan is the definition of the environmental objectives (i.e. good water status) and of compliance. Today, how will compliance be defined remains to be clarified.[7]

Ensuring adequate links with other policies – the analysis at the scale of each river basin may identify problems that may be better tackled by national policies (e.g. the Common Agricultural Policy). Mechanisms will be required to ensure the cost-effectiveness analyses undertaken in different river basins can be consolidated and fed into national policy discussions.

  1. Implementation issues

Undertaking the analysis in a timely manner – Timely does not imply compliance deadlines as defined by the directive. An iterative process is required with early and rough cost-effectiveness analysis for identifying key priorities for action and for complementing the information base for further developing the economic analysis. This is key to ensuring the environmental objectives of the WFD can effectively be met in due time.

Capacity - Capacity, a challenge for many disciplines and working groups, is of particular importance for the WATECO group and the economic analysis. Capacity is already identified as a key constraint in doing cost-effectiveness analyses. To associate training organisations to the WATECO activities has been considered as a means for tacking capacity issues in the short term. Such organisations would transform the material produced, the results of the scoping and testing and the guidance document into a series of training product for addressing the potential training demand in EU member states and candidate countries.

Linking the economics with Article 14 – Strong links are expected between the economic analysis and information, consultation and participation of stakeholders (Article 14). Clearly, the results of the economic analysis in terms of total costs, budgetary implications, assessment of cost-recovery, are key elements of interest for the public and stakeholders. Linking the economic analysis with information and consultation has been part of the scoping activities undertaken in the Ribble river basin by the Environmental Agency in the UK. However, further work will be required on this issue, building on the activities developed under the working group BESTPRACT on participation.

Looking to the future

The coming months will be key in the activities of the WATECO group. A series of key activities are planned for ensuring the final guidance document can effectively be delivered to the water directors for their meeting under the Spanish Presidency. The following figure summarises the key activities and expected output between today and the end of the first semester of 2002.

Because of their contents, some of the information sheets may be better further developed in collaboration with other working groups (e.g. scale and trend issues in collaboration with the IMPRESS group). Other information sheets that have clear policy implications (e.g. how to justify derogation for new modifications) will form the basis of discussions with other working groups and with the strategic group.

A conference is planned in Lille, March 18 & 19, 2002, under the Spanish Presidency for presenting the guidance document and the results of the scoping and testing activities to a wide range of experts and stakeholders from EU Member States and candidate countries. The conference will built on a series of interactive working sessions, half of which will deal with the integration of economics with other issues (the role of economics in the designation of heavily modified water bodies, developing Article 5 and linking economics with impacts and pressures, economic analysis and information/consultation/participation of the public/stakeholders).

The Conference will lead to a final revision of the guidance document before it is submitted to the strategic group and water directors during their informal meeting under the Spanish Presidency.

Conclusion

Following a first phase of identification and investigation of conceptual and operational issues, the WATECO group is now fully engaged into activities that will ensure the final guidance document is pragmatic and practical. Key elements in this context include: (i) the scoping and testing activities developed in several Member States and in the international Scheldt river basin; (ii) the increasing interaction with other working groups, as illustrated by the joint work undertaken with the HEAVMOD group; (iii) the organisation of seminars targeted to candidate countries to ensure their expertise, experience and constraints are duly considered while developing the guidance document. All these will ensure minimum requirements and best practices, 2004 requirements and follow-up activities are well identified.

Much efforts remain in ensuring economics and other disciplines are adequately linked and integrated. Such efforts will continue during the guidance document development but will need to continue in the context of the integrated testing in pilot river basins.

A guidance document on the economic elements of the Water Framework Directive

Draft outline

Foreword

Putting the guidance document into the context of the Common implementation strategy

The WATECO group: objectives, members, activities, final product = this document

Stressing the non-binding status of the document

For which audience is the guidance document targeted to?

Table of content

How to use the document? (guide to the reader)

Different uses of the guidance document for different purposes, e.g. defining the boundaries of the economic analysis, doing the economic analysis. For each use, to stress which sections and parts of sections are particularly relevant.

On The role of economics in the WFD, to look at the following sections: Where can we find economic elements in the WFD. Integration of economics in the overall process of developing integrated river basin plans. The different steps of the overall economic approach (cost-effectiveness analysis). Links between economics and other disciplines or WFD working groups.

On How to do the job, to look at the following sections: planning and organisation of the economic analysis (resources and expertise, information, finances, etc), ensuring integration between expertise, the tool box, minimum requirement, best practices for key dates (2004), illustrations (scoping and testing examples)

For Material for supporting the implementation process, to see: key summary output tables/reporting tables, terms of reference for consultants

And finally: What does the guidance document not do?

Introduction - Implementing the Water Framework Directive

The key elements of the Water Framework Directive

Integrating economic concepts, issues, instruments: a key innovation with limited practical experience

The Common Implementation Strategy: developing a common understanding, including on economic issues

Section 2 - The economic elements of the Water Framework Directive

Economic analysis (Article 5 and Annex III)

Pricing as a tool

Other economic issues

Summary: integrating the economic issues into the overall planning process

Section 3 - Implementing the economic analysis

Decision-making process: what is required when under which format?

Expertise and human/financial resources

Information and knowledge

Linking with other disciplines (e.g. guidance documents, working groups)

Planning information, consultation and participation (public, stakeholders)

Section 4 - A 3 step approach for the economic assessment of programmes of measures

Note: for each step, to remind (see format for facilitate the reader's task)

. minimum requirement, best practice, specific deadlines (2004/2006/2008)

. key operational issues (expertise required, links with other disciplines/working groups, information/consultation/participation issues)

Step 1 - characterising river basins

Economic analysis of water uses

Investigating 2015 (trend analysis)

Assess existing cost-recovery levels

Step 2 - identifying key water management issues

Note: this step is strongly linked to the assessent according to Annex II of the WFD.

Identify the "gap" in water status

Identify the main factors/pressures causing this gap

Step 3 - developing the cost-effectiveness analysis for defining programmes of measures

Identify potential measures

Assess the costs of these measures

Assess the effectiveness of the measures

Combining effectiveness and costs: the cost-effectiveness analysis

Deciding on derogation (time, objective)

Assess the impact on future cost-recovery

Section 5 - The tool box

(Note: for each information sheet and whenever relevant, to stress minimum requirement, best practice, 2004 requirements)

Water uses and water services

Trend analysis and baseline scenario

Scale and (dis-)aggregation issues

Costs

Cost-effectiveness analysis

Assessing benefits

Justifying derogation (disproportionate cost issues)

Justifying new modifications and sustainable development activities

Assessing costs and benefits

Assessing the incentive role of water pricing

Reporting on cost-recovery

Summarising the 2004 requirements

Annex I - the economic elements of the Water Framework Directive (original WFD text)

Annex II - Glossary

Annex III - list of references (other relevant guidance documents, reports and research papers WEB sites)

Annex IV - Illustrations: scoping and testing exercise

Annex V - Key summary and reporting tables/tools

Annex VI - Joint documents developed with other working groups (e.g. appraisal for the designation process of heavily modified water bodies)

Annex VII - Terms of reference for consultants

Annex VIII - Synthesis of the Budapest workshop

Annex IX - Synthesis of the Lille Conference