Marine Strategy Framework Directive: Common Implementation Strategy

Working Group on Economic and Social Assessment

Meeting in Bonn, 13-14 October 2011

Agenda Item 9

Disproportionate costs

Background: At the WG ESA meeting in Paris in March 2011 it was decided upon to form a working group which would produce a discussion paper on article 10, 13 and 14 with the purpose to reach a common understanding of the requirements within the WG ESA.

This discussion paper explores the meaning of disproportionate costs in the context of Marine Strategy Framework Directive (MSFD Article 14).

All WG ESA participants are asked to read the paper which will form the basis for discussions at the meeting.

Disproportionate costs

(Discussion paper)

1Purpose of the paper

1.1This discussion paper explores the meaning of disproportionate costs in the context of Marine Strategy Framework Directive (MSFD). The paper is not intended to provide guidance or guidelines – though WG ESA may wish to discuss whether these need to be produced in due course. The structure of the paper is as follows

  • What does the MSFD directive says on disproportionate costs?Is there any text and wording on how disproportionate costs should be applied in the context of MSFDthat needs further clarification?
  • How has ‘disproportionate costs’ been described in Water Framework Directive (WFD) and the Common Implementation Strategy (CIS) for the Water Framework Directive?
  • What are the key similarities and differences? Can we directly apply the WFD guidance in the context of MSFD?
  • What are the key factors to consider when informing decisions on disproportionate costs? In this section, the paper will provide key messages from a UKworkshop led by Eftec[1].
  • Conclusion

2What does the Marine Strategy Framework Directive say on disproportionate costs?

2.1The Preamble and Article 14 of the Directive state that Member States are not required to take specific steps where costs are disproportionate taking account of the risk of the marine environment.

Para 11 of the Preamble
Each MemberState should therefore develop a marine strategy for its marine waters which, while being specific to its own waters, reflects the overall perspective of the marine region or sub region concerned. Marine strategies should culminate in the execution of programmes of measures designed to achieve or maintain good environmental status. However, Member States should not be required to take specific steps where there is no significant risk to the marine environment, or where the costs would be disproportionate taking account of the risks to the marine environment, provided that any decision not to take action is properly justified.
Para 3 of Article 13
When drawing up the programme of measures pursuant to paragraph 2[2], Member States shall give due consideration to sustainable development and, in particular, to the social and economic impacts of the measures envisaged. To assist the competent authority or authorities referred to in Article 7 to pursue their objectives in an integrated manner, Member States may identify or establish administrative frameworks in order to benefit from such interaction. Member States shall ensure that measures are cost-effective and technically feasible, and shall carry out impact assessments, including cost-benefit analyses, prior to the introduction of any new measure.
Para 4 of Article 14
Member States shall develop and implement all the elements of marine strategies referred to in Article 5(2), but shall not be required, except in respect of the initial assessment described in Article 8, to take specific steps where there is no significant risk to the marine environment, or where the costs would be disproportionate taking account of the risks to the marine environment, and provided that there is no further deterioration. Where, for either of these reasons, a Member State does not take any steps, it shall provide the Commission with the necessary justification to substantiate its decision, while avoiding that the achievement of good environmental status be permanently compromised

2.2While the paragraphs above clearly mention that Member States are not required to take steps where costs are disproportionate and where there is no significant risk to the environment, it also very clearly specifies that where steps are not taken Member States will have to provide clear justification of their decision. This is re-emphasised further by Article 13(3) of the Directive which mentions that the Member States are required to ensure that measures are cost effective by carrying out a cost benefit analysis before introduction of the measure. However there is less clarity on some issues and these are presented as questions for discussion in the box below.

Questions for further consideration
  • What is meant by ‘taking account of the risk to the marine environment’?
  • Where analysis shows that measures are likely to be disproportionately costly what implication will this have on the next phase of assessment of measures and targets?

3What does the Water Framework Directive say on disproportionate costs?

3.1Under certain conditions (Article 4.4 and 4.5), the WFD permits the assignment of a less stringent objective or the extension of the timescales for achieving a particular objective. Article 4.7sets out circumstances in which failure to achieve certain of the WFD objectivesare permitted[3].

Para 4 of Article 4
The deadlines established under paragraph 1 may be extended for the purposes of phased achievement of the objectives for bodies of water, provided that no further deterioration occurs in the status of the affected body of water when all of the following conditions are met:
(a)Member States determine that all necessary improvements in the status of bodies of water cannot reasonably be achieved within the timescales set out in that paragraph for at least one of the following reasons:
(i) the scale of improvements required can only be achieved in phases exceeding the timescale, for reasons of technical feasibility;
(ii) completing the improvements within the timescale would be disproportionately expensive;
(iii) natural conditions do not allow timely improvement in the status of the body of water.
Para 4 of Article 5
Member States may aim to achieve less stringent environmental objectives than those required under paragraph 1 for specific bodies of water when they are so affected by human activity, as determined in accordance with Article 5(1), or their natural condition is such that the achievement of these objectives would be infeasible or disproportionately expensive, and all the following conditions are met:
(a)the environmental and socioeconomic needs served by such human activity cannot be achieved by other means, which are a significantly better environmental option not entailing disproportionate costs;
(b)Member States ensure,
- for surface water, the highest ecological and chemical status possible is achieved, given impacts that could not reasonably have been avoided due to the nature of the human activity or pollution,
- for groundwater, the least possible changes to good groundwater status, given impacts that could not reasonably have been avoided due to the nature of the human activity or pollution;
(c) no further deterioration occurs in the status of the affected body of water; (d) the establishment of less stringent environmental objectives, and the reasons for it, are specifically mentioned in the river basin management plan required under Article 13 and those objectives are reviewed every six years.
Para 7 of Article 4
Member States will not be in breach of this Directive when
- failure to achieve good groundwater status, good ecological status or, where relevant, good ecological potential or to prevent deterioration in the status of a body of surface water or groundwater is the result of new modifications to the physical characteristics of a surface water body or alterations to the level of bodies of groundwater, or
- failure to prevent deterioration from high status to good status of a body of surface water is the result of new sustainable human development activities
and all the following conditions are met:
(a) all practicable steps are taken to mitigate the adverse impact on the status of the body of water;
(b) the reasons for those modifications or alterations are specifically set out and explained in the river basin management plan required under Article 13 and the objectives are reviewed every six years;
(c) the reasons for those modifications or alterations are of overriding public interest and/or the benefits to the environment and to society of achieving the objectives set out in paragraph 1 are outweighed by the benefits of the new modifications or alterations to human health, to the maintenance of human safety or to sustainable development, and
(d) the beneficial objectives served by those modifications or alterations of the water body cannot for reasons of technical feasibility or disproportionate cost be achieved by other means, which are a significantly better environmental option’

3.2The Common Implementation Strategy for the Water Framework Directive then goes on to say that 'Disproportionality', as referred to in Article 4.4 and 4.5, is a political judgement informed by economic information, and an analysis of the costs and benefits of measures is necessary to enable a judgement to be made on exemptions. It was already concluded in the WATECO guidance that, given the uncertainty around estimates of costs and benefits one should bear in mind 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. This analysis might need to be disaggregated to the level of separate socio-economic groups and sectors, especially if ability-to-pay is an issue for a particular group within the region.

3.3From the logic of the WFD is becomes clear that an assessment of disproportionate costs only makes sense after a combination of the most cost-effective solutions has been identified. Most importantly, for all cases where an exemption is applied, all measures that can be taken without involving disproportionate costs should still be taken to reach the best status possible. In cases where exemptions are considered the consequences of non-action (i.e. foregone benefits) need to be weighed against the specific costs of the measures.

4Assessment of the similarities and differences between the two Directives

4.1The key similarity is that both the Directive requires Member States to set environmental standards (targets in case of MSFD and objectives in case of WFD) and provides certain conditions under which these standards do not have to be achieved (disproportionate costs being one of them).

4.2However while the WFD is very specific in stating that such exemptions allow Member States to revise their objectives or extend their deadline, it less clear from the wording in the MSFD how these exemptions should apply. For instance, it is unclear from the text in Art 14.4 of the MSFD how ‘taking no further steps’ would translate when we are looking at measures in the next assessment phase of the Directive.

4.3Though the exemptions are differently presented in the twoDirectives, the factors that a decision-maker will need to consider when assessing whether costs are disproportionate or not are likely to be similar under both the Directives. In addition, for both the Directives there is a need to adopt a proportionate evidence based approach when looking at the problem,though further discussion may be requiredon the spatial scale over which it is appropriate to consider disproportionate costs.

4.4The CIS guidance for WFD states that the decision of disproportionate costs is a political one; a similar conclusion might apply to the MSFD. However, this does not protect any decision made from legal challenge and it is likely that any decision will need to be clearly based on the weight of the evidence.

Questions for further consideration:

  • To what extent can the WFD exemption guidance be used for MSFD purposes?
  • Over what spatial scale it is appropriate to consider disproportionate costs in the context of MSFD?
  • How should Member States apply the notion of political judgement?

5Factors to consider when making decisions on disproportionate costs

5.1As stated by section 4 above Member States need to provide strong socio-economic evidence to inform any political decision and to prevent successful legal action. In June 2011, DEFRA along with the consultants Eftec conducted a workshop on disproportionate costs which looked at technical factors that needed to be considered when making any such decision. The following list of technical factors were listed –

  • Economic efficiency
  • Distributional issues
  • Risks to the environment and
  • Not compromising GES.

The latter two issues are ecological issues and hence were not discussed in detail in the workshop[4]. Hence they do not feature in the paper as well.

5.2The following economic factors (to consider when assessing disproportionate costs) were discussed at the workshop.

  • Costs exceed benefits – The first step would be to assess if the cost of measures are likely to exceed the benefits. This would imply (Cost – Benefit > 0) or if costs exceed benefits by some ratio, (C/B>X, where X is greater than 1). Though this is the first step it is not the only factor that should qualify a measure as disproportionately costly.
  • Effectiveness of the measure – This implies that not only does the costs exceed the benefits, it exceed it by a high proportion (C-B>Y% of B) or by a margin (C-B>Z). WATECO guidance on WFD also states that measures are likely to be disproportionate when where returns on public investment are lower than for other environmental investment opportunities (WATECO, 2003);

5.3However this highlighted several challenging issues that were raised and discussed at the workshop. Some have been listed below:

  • The above principle assumes that we can value all the benefits. Assessments of benefits across descriptors will be challenging and they are likely to be both qualitative and quantitative.
  • There also might be a varying degree of confidence on estimates – i.e. some of the costs estimates will depend on information from industries/developers and there will be a need to scrutinise the credibility of these estimates.
  • There is a need to also look at and include implicit costs. For example, if a measure on Descriptor 11 (noise) results in the failure to deliver on the country’s renewable energy targets then these costs would need to be included.
  • There might be challenges in deciding what constitutes a margin beyond which costs are disproportionate. It is likely that this margin would vary from case to case depending on say size of the industry. For example, a measure costing say £50K, whilst relatively minor for larger industrial fleets and vessels, would represent a major impact on small fishing boat owners that could lead to large social impacts in terms of wiping out the income and employment of an entire community of fishermen (please see section on ‘distributional impacts’).
  • Time period over which the measure is being implemented is an important factor when assessing whether costs are disproportionate. This is because longer timescales reduce costs by incorporating them into existing investment cycles. For example, if a measure involves retrofitting ships with new efficient (less noisy) propellers then the measure is likely to be disproportionately costly if adopted over a short timeframe (as it might involve expensive changes to existing fleet) but more likely to be feasible if it is applied to only future ships. Also providing certainty about measures to the industry at an early stage would reduce costs as they can take account of such measures in their planning process.
  • There are likely to be trans-boundary issues when assessing costs and benefits. Thiscame up as particularly relevant when assessing benefits, i.e. could be disproportionately costly if applied by the UK alone, but not if applied across the whole OSPAR region.

5.4The workshop also discussed the importance of taking into account distributional impacts. Certain measures though may deliver benefits at a national level, are likely to have implications on regional communities. In other words there is likely to be a trade off between ‘Equity’ versus ‘Efficiency’. For example, certain measures on fishing might result in localised unemployment impacts restricted to particular regional/coastal communities.

5.5The workshop highlighted the following key aspects when looking at distributional impacts:

It is not only important to look at impact on economic indicators, such as employment and income, but there is also a need to look at social indicators such as impact on community cohesion, lifestyle, health, wellbeing and feeling of social insecurity from a lack of employment. It is often challenging to quantify the impacts on the latter.

  • Local impacts are likely to be big if the relevant activity is over-represented, employing a large proportion of the population. For example, measures impacting onfishing communities are likely to cause severe localised impacts if fishing is the primary and only occupation in certain communities.
  • It is important not to ignore secondary impacts (or impacts through the supply chain). Impacts on a particular sector might have knock on impacts on other sectors. For example, reduction in income to fishermen would imply reduced consumption expenditure affecting other businesses in the community.
  • It is also important to understand the localised benefits from imposing measures on environmentally damaging activities. For example, some of the measures that could potentially improve environmental conditions could increase the inflow of tourists (including sea anglers and divers), resulting in more business to the community. Thus, the net effect would depend on the ability of the community to transfer its skills to capitalise on the growth of a different sector.

5.6It was also highlighted at the workshop that it would be possible to address distributional issues by compensating the socio-economic group affected, perhaps through a means such as transfer payments. However, this may not be particularly effective solution if the rest of the local businesses are dependent on the income generated via this group, and thus the secondary impacts down the chain would not be addressed. Also, lack of government funds may make any such compensation not feasible.