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The potential role of stated preference methods in the Water Framework
Directive to assess disproportionate costs
Roy Brouwer a
a
Institute for Environmental Studies (IVM), Vrije Universiteit, Amsterdam, The Netherlands
Online Publication Date: 01 September 2008
To cite this Article Brouwer, Roy(2008)'The potential role of stated preference methods in the Water Framework Directive to assess
disproportionate costs',Journal of Environmental Planning and Management,51:5,597 — 614
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Journal of Environmental Planning and Management
Vol. 51, No. 5, September 2008, 597–614
The potential role of stated preference methods in the Water Framework
Directive to assess disproportionate costs
Roy Brouwer*
Institute for Environmental Studies (IVM), Vrije Universiteit, Amsterdam, The Netherlands
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(Received June 2005; final version received January 2008)
This paper examines the issue of disproportionate costs of Water Framework Directive
(WFD) implementation using public surveys as a means to inform policy and decision
making. Public taxpayers are asked their opinion regarding the implementation of
the WFD and its costs. Taxpayers are expected to bear a large share of the cost of
WFD implementation, be it through national taxation, local water pollution charges or
higher market prices for water related goods and services. The paper’s main objective is
to illustrate the role of stated preference research to elicit public opinions and
perceptions towards socially acceptable levels of water quality and public willingness to
pay (WTP) for the expected environmental benefits of the WFD. Stated preference
research can be used as a way to assess the concept of disproportionate costs to those
who are expected to bear a large share of the costs of WFD implementation, and at
the same time address the issue of public participation in the WFD. The survey results
are used as a public consultation tool to inform policy and decision makers about
public willingness and ability to pay for the implementation of the WFD. This measure
can be used as one of the benchmarks to define disproportionate costs in a cost-benefit
context.
Keywords: Water Framework Directive; stated preferences; disproportionate costs;
contingent valuation; cost-benefit analysis; public participation
1.
Introduction
The European Water Framework Directive (2000/60/EC) (WFD) is one of the first
European Directives in the domain of water to explicitly recognise the role of economics in
reaching environmental water quality objectives. The Directive calls for the application of
economic principles (e.g. polluter pays principle), methods and tools (e.g. costeffectiveness analysis) and for the consideration of economic instruments (e.g. water
pricing methods) for achieving good water status for all European water bodies in the
most cost-effective manner. Investments and water resource allocations in river basin
management plans have to be guided by cost recovery and cost-effectiveness criteria and
the polluter pays principle. Furthermore, the plan formulation and assessment process
must include a meaningful consultative dialogue with relevant stakeholders. Such a
dialogue will inevitably raise socio-political equity issues across the range of interest
groups and therefore affect the management strategies to be chosen.
*Email: roy.brouwer@ivm.vu.nl
ISSN 0964-0568 print/ISSN 1360-0559 online
Ó 2008 University of Newcastle upon Tyne
DOI: 10.1080/09640560802207860
http://www.informaworld.com
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R. Brouwer
Given the role of economic analysis, it is remarkable to say the least that economic
efficiency is not part of the Directive’s remit, and cost-benefit analysis (CBA) is not
mentioned anywhere in the Directive. The Directive is widely considered and interpreted
by policy makers and water managers as an ecological directive, that is, driven by and
based upon ecological principles of sustainable water management. A common
operational definition of the environmental objectives of the Directive of ‘good chemical
status’ and ‘good ecological status’ was, despite their definition in Article 2 and many
years after the adoption of the Directive, still not available at the time of writing this
paper. A similar situation exists for the environmental threshold values to be established
under the new European Groundwater Directive (2006/118/EC) and adopted in response
to Article 17 in the WFD. Here too, economic efficiency criteria are kept outside the
decision-making procedure to fix threshold values for specific groundwater pollutants in
order to not mix up the ecological and economic principles. Whether or not the threshold
values are feasible and affordable from a social and economic point of view only plays a
role after the threshold values have been derived based on ecological criteria.
Rights are implicitly assigned to the environment and European citizens to an
improved state of the environment or at least the status quo as embodied in the ‘no
deterioration rule’ in the WFD, with no consideration of the social costs and benefits
involved, except for the notion that Member States (MS) can seek derogations from the
Directive if the costs of meeting the environmental objectives are considered disproportionate. Mentioning excessive costs is not the same as economic efficiency though, as this
would require that legislation clearly defines excessive or disproportionate as costs
exceeding benefits and this is not the case in any of the European Directives where similar
escape clauses have been included (see for example also the IPPC Directive (96/61/EC) or
the Habitats Directive (92/43/EEC)). Moreover, the issue of disproportionate costs only
seems to appear under pressure from MS and primarily reflect concerns about
competitiveness rather than welfare gains and losses. Brouwer and Pearce (2005) argue
that European legislation such as the WFD implicitly assigns higher weights to
environmental benefits compared to the social costs involved, referred to as ‘asymmetric
property rights’. Based on an overview of important existing European environmental
legislation, including the WFD, they conclude that in none of the evaluated cases a CBA
was carried out prior to adoption of the Directive by the European Commission, while in a
majority of the individual cases where a CBA was conducted by individual MS the social
costs were higher than the benefits, i.e. resulting in a welfare loss.
The question here is how MS collectively agree to Directives like the WFD that impose
a net social cost on them, and what exactly they consider a disproportionate cost when it
comes to the actual implementation of the WFD. The implementation of the WFD across
EU MS is expected to cost hundreds of millions and possibly billions of euros in the next
decades (De Nocker et al. 2007), while there is very little to virtually no insight into their
benefits (Bateman et al. 2006).1 It is highly questionable whether policy makers and society
as a whole are willing to pay these investment sums without any further justification as to
their socio-economic benefits.
In this paper, the issue of disproportionate costs of WFD implementation is examined
using public surveys as a means to inform policy and decision makers about public
taxpayer opinion regarding the implementation of the WFD and its costs. As part of the
‘property right asymmetry’, taxpayers are expected to bear the largest cost of the WFD
implementation, be it through national taxation, local or regional water pollution fees and
taxes or higher prices for water intensive products. The paper’s main objective is to
illustrate the usefulness of large-scale public surveys in the domain of water to elicit
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opinions and perceptions towards socially acceptable levels of water quality and public
willingness to pay (WTP) for the expected environmental benefits of the WFD. It is
emphasised that these surveys are not intended to replace current decision-making
procedures and expert assessment regarding what is ‘good’ chemical and ecological status
or what constitutes a disproportionate cost, but to complement the relevant information
flow to support policy and decision making in this area. Public surveys can be regarded as
one possible way to organise and report about public participation in the river basin
management plans according to Article 14 in the WFD.
The remainder of this paper is organised as follows. Section 2 summarises the various
views on disproportionate costs in a number of EU MS. This is followed in section 3 by a
discussion of the potential role of stated preference research in the WFD implementation.
Section 4 presents the results of a mandated CBA of WFD implementation in the
Netherlands and illustrates the difficulties encountered when trying to interpret the results
in terms of disproportionate costs. This is followed by the results of a large-scale stated
preference survey, from which useful additional and complementary information can be
obtained. Finally, section 6 concludes.
2.
The concept of disproportionate costs in the WFD
The procedure to establish the environmental objectives in the WFD is described in Article
4. This Article also allows for so-called derogation, i.e. to lower environmental objectives
or delay them in time based on (1) technical feasibility of achieving the objectives and/or
(2) disproportionate costs (paragraphs 3–7). Here the focus is on the latter criterion. The
concept of disproportionate costs is not a standard economic concept. The assessment of
disproportionate costs is subjective (Water Economics (WATECO) Guidance Document,
European Communities 2002), depends on the political economy of a country or river
basin region, and proves to be surrounded by a great deal of uncertainty as to its exact
definition and measurement scale in the practical implementation of the WFD. It refers to
a skewed distribution (discrepancy) between an objective and measures for reaching the
objective, but concrete national or international benchmarks do not exist to justify
exemptions, also not in comparable European Directives such as the IPPC Directive where
the concept of Best Available Techniques Not entailing Excessive Costs (BATNEC) is
introduced or the Habitats Directive, which refers to ‘imperative reasons of overriding
public interests, including those of a social or economic nature’.
In theory, the assessment of disproportionate costs follows the assessment of the least
cost way to reach the WFD environmental objectives (Article 11 and Annex III) and the
corresponding distribution of the financial burden across different groups in society
(households, agriculture and industry) through existing or future pricing policies as
formulated in Article 9 in the WFD. However, in practice, excessive or disproportionate
costs usually play an important role already during the first stages of selecting a costeffective programme of measures as a political screening criterion.2 Whether the costs of
reaching the defined environmental WFD objectives are disproportionate depends on the
willingness and ability to pay by different socio-economic groups and sectors in society to
whom these costs are transferred and who are expected to pay for them. Willingness to pay
depends among others on political, sectoral and public preferences for the environmental
objectives involved, the environmental and resource costs of current water use (see Article
9), and ability to pay. Ability to pay in turn depends on the financial strength and capacity
of the public and private actors involved, which is in part determined by the state of the
economy.
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R. Brouwer
Given the formal legal definition of disproportionate – unequal relationship between
two units, in casu the objective and the means to achieve the objective – the key question to
assess disproportionate costs is to what extent the costs of WFD measures outweigh the
benefits of reaching the WFD objectives. From an economic perspective, CBA is the
obvious tool to assess this relationship, using either the net present value or benefit-cost
ratio as the decision criterion, comparing all positive and negative welfare effects of the
WFD measures to achieve good chemical and ecological status. Assuming that all positive
and negative welfare effects are properly accounted for in the CBA, a negative net present
value (NPV) or a benefit-cost ratio less than one, indicating a national welfare loss, would
result in principle in a rejection of the proposed programme of measures to reach the
proposed WFD objectives. However, given the public good nature of the WFD objectives
and in the interest of future generations, the government may be willing to accept a
benefit-cost ratio of less than one. The question then becomes how many times the costs
can exceed the benefits before the programme of measures involved is considered
disproportionate. Uncertainty plays an important role here too, related to the assessment
of the costs and the environmental and social benefits of WFD implementation.
Investment costs in water quality improvement are often surrounded by less uncertainty
than the associated environmental benefits (Brouwer and DeBlois 2008). An important
question then is how much uncertainty policy makers are willing to accept to financially
commit to substantial investments without knowing what exactly they receive in return.
Another important issue is the scale at which the assessment of disproportionate costs
takes place. Costs may be considered disproportionate at the level of an individual region
or sector given their financial buoyancy, but economically beneficial at the higher
aggregated level of a nation as a whole. On the other hand, the skewed distribution of
costs and benefits across time and space and different sectors may be an important reason
for policy makers to consider a particular solution undesirable given for example the
negative (disproportionate) effects on certain vulnerable regions or groups in society.
Since the Directive does not give any concrete suggestions as to when costs should
be considered disproportionately expensive (neither do the WATECO guidelines), the
definition is left to the MS. Görlach and Pielen (2007) present some of the different
perspectives that exist in MS. In general, there seems to be consensus across the board that
the term disproportionate implies that costs are disproportionate in relation to either the
benefits of WFD implementation or the available financial resources. In the first case
disproportionate implies that the implementation of the WFD – even in the least cost
way – is not economically efficient. If costs exceed benefits, the welfare impact of WFD
implementation is negative and it would be better to spend the limited available resources
on less ambitious environmental objectives or to spend them in an alternative way
altogether, for example, on health care, education or employment. However, a technical
issue here is that a CBA requires that all costs and benefits of WFD implementation can be
assessed and estimated in an economic way, which may not always be the case. Hence,
alternative multi criteria analysis (MCA) methods have been proposed (see note 2) to
assess the environmental, social and economic impacts of the WFD.
Comparing the costs of WFD measures with the available financial resources, a
different type of indicator for disproportionate is found. Even an economically efficient
policy may not be affordable if the necessary financial resources are not available. In most
MS lack of financial resources is primarily a matter of public budget allocation and hence
a political decision. Affordability is expected to be a completely different matter at the level
of individual households and economic sectors. In the latter case the competitive position
and hence the economic survival of a sector may be at stake depending on the sector’s
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financial solvability and viability. In the former case, lower-income households may see
their purchasing power reduced to socially and politically unacceptable (poverty
threshold) levels. Benchmarks and thresholds will have to be defined at European level
on the basis of socially and politically defined ‘acceptability’ criteria, taking into account
differences between MS. For example, the total water bill cannot exceed more than 5% of
total disposable household income. If measures are not affordable for a certain sector or
group of households, financial transfers can be used to share the burden. This may also be
welfare enhancing, as total welfare improves if costs are re-distributed from the relatively
poor to the relatively well-off given decreasing marginal utility of income.
In France, water managers seem to attach most importance to affordability type of
arguments that underline the importance of social factors in defining disproportionate
costs. One of the French Water Agencies proposes, for example, a threshold of a 20%
increase in absolute costs to screen potentially disproportionate measures, whereas
another French Water Agency holds on to an absolute limit of maximum 2% of total
household expenditures (Görlach and Pielen 2007). In the UK, the balance between costs
and benefits is considered more important, and attention focuses mostly on the
comparison of costs and benefits. Financial arguments are also important, but only after
comparison of total costs and benefits. The Netherlands is somewhere in between these
two approaches, and both welfare economic and affordability arguments play a role
(Brouwer et al. 2005). Most importantly, the Netherlands underline the political character
of the disproportionate cost discussion, suggesting that it is up to policy makers to define
what thresholds should be used. For this, several indicators are suggested at different
relevant levels, such as costs as a percentage of GDP or the percentage increase of the
water bill compared to disposable household income. Clearly, for the European WFD to
be effective it is important that MS use comparable criteria in defining disproportionate
costs and that the methods and indicators used are transparent and clear. In the next
section an example will be presented based on the situation in the Netherlands, and the
potential role of public surveys in relation to disproportionate costs will be further
elaborated.
3. The potential role of stated preference methods in the WFD
3.1. Stated preference methods
Stated preference methods are based on social survey techniques to elicit public
preferences and have been used since the 1970s by environmental economists to value
the non-market benefits of environmental change (e.g. Bateman and Willis 1999, Bateman
et al. 2002). Of these, the contingent valuation (CV) method is probably the best known
(e.g. Mitchell and Carson 1989). More recently, choice experiments (CE) have gained in
popularity as an alternative to CV (e.g. Hanley et al. 1998, Hensher et al. 2005, Hanley
et al. 2006). In the surveys, individuals are presented with information about specific
environmental changes, the values of which are not accounted for in economic markets
or captured through market-based instruments. Individual perceptions, attitudes and
preferences regarding these changes are elicited. An important difference between CV and
CE is that in the latter case respondents are usually presented with a series of alternative
policy scenarios described in terms of their key characteristics including a cost price,
whereas in CV surveys respondents are asked to value one or two policy scenarios
described in a more holistic way. In order to measure the effect of environmental policy
on people’s welfare, respondents in the survey are typically also asked for their willingness
to pay (WTP) or willingness to accept (WTA) compensation for the gains or losses
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R. Brouwer
involved. Of these options the WTP approach has become the most frequently applied and
has been given peer review endorsement through a variety of studies (e.g. Arrow et al.
1993).
Aggregated across all stakeholders who benefit from the services provided by
ecosystems and natural resources, the aggregated WTP or WTA amount provides an
indicator of the total economic value (TEV) of any change in their provision, including
their quality level. Environmental economists have introduced a taxonomy of this TEV,
distinguishing between use and non-use values, in order to account for the various reasons
and motives people may have to value environmental change. Stated preference methods
such as CV and CE are the only economic methods able to account for possible non-use
motivations underlying people’s value statements. Whereas use values refer to the values
associated with the actual use of the various goods and services provided by ecosystems
and natural resources, non-use values are unrelated to any actual or potential use, and
may refer for example to the value people attach to preserving ecosystems or species
(existence values) or the value people attach to leaving a healthy environment behind for
future generations (bequest value).
Applications of stated preference methods in European environmental policy,
including the WFD, are rare (Brouwer 2006, Hanley et al. 2006). The use of the
hypothetical values produced by stated preference methods in actual policy and decision
making is not undisputed (e.g. Diamond and Hausman 1994, Jacobs 1997, O’Neill 1997,
Clark et al. 2000). Examples exist where the inclusion of non-market values, elicited
through original valuation research or so-called benefits transfer, in public decision
making and CBA more particularly, resulted in protest or a public inquiry and
consequently the dismissal of CBA as a decision-support tool (e.g. Moran 1999, Bateman
et al. 2000). In order to arrive at useful, authorised values in CBA, economic values have
to be accepted by scientists, policy and decision makers and stakeholders involved, i.e.
those affected by public policy and decision making and bearing the costs and benefits.
This paper does not aim to repeat all the pros and cons against stated preference
methods. It is acknowledged that the economic values generated by stated preference
methods can be biased and have to be interpreted carefully within the context in which
they are elicited. The paper’s main aim is to illustrate how stated preference research can
be used simultaneously as a way to assess the concept of disproportionate costs to those
who are expected to bear a large share of the costs of WFD implementation, and address
the issue of public participation in the WFD.
3.2. Public participation and consultation
The WFD requires that MS ensure public consultation and encourage active involvement.
In the WFD Guidance Document on Public Participation (European Communities 2003),
public participation is broadly defined as allowing the public to influence the outcome of
‘plans and working processes’. Public includes members of the public (citizens) with only a
limited interest in the issue concerned and limited influence on its outcome. Following
Arnstein’s (1969) participation ladder, the Guidance Document makes a distinction
between information supply, consultation and active involvement. Public consultation
means that the public can react to plans and proposals developed by the authorities.
According to Article 14 in the WFD, consultation refers to written consultation only. The
Guidance Document also refers here to the government organising a public hearing or
actively seeking the comments and opinions of the public through for instance interviews.
Active involvement reflects a higher level of participation than consultation, implying that
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stakeholders are invited to contribute actively to the planning process by discussing issues
and contributing to their solution (European Communities 2003).
3.3. Potential role of stated preference research in the WFD
Public surveys are not mentioned explicitly as one of the techniques listed in the WFD
Guidance Document on Public Participation, but come close to what the Guidance
Document refers to as interviews. A wide variety of public survey formats can be
distinguished (e.g. Punch 2003, Groves et al. 2004, Presser et al. 2004). The ones most
frequently applied in stated preference studies consist of questionnaires using a
combination of open and closed ended questions related to respondent knowledge and
awareness of the environment, perception and attitudes towards environmental change,
and respondent opinion and preferences for environmental policy. Furthermore,
information is collected about respondent socio-demographic background in order to be
able to test how representative the survey is for the whole population from which the
sample was drawn.
Representativeness is usually an important criterion for the implementation of a stated
preference survey study if the sample results are used to estimate a TEV for the population
as a whole. For example, this can be the population of a town or city, region, state,
province, county, river basin or a whole country. The questionnaire surveys can be
conducted face-to-face, by mail, telephone or the internet. The questionnaire survey
typically produces quantitative data, which are analysed with the help of statistical
methods and techniques. Qualitative survey methods produce more detailed in-depth data
and information. Increasing the level of detail and trying to obtain more in-depth
information from respondents is often at the expense of the data’s representativeness
(Brouwer et al. 1999).3 Examples of qualitative survey methods include in-depth interviews
with selected groups of stakeholders, focus groups or citizens’ juries (e.g. Denzin and
Lincoln 2005).
Stated preference methods using public surveys are one way to ensure that the general
public is consulted about proposed plans and test the acceptance of and support for these
plans. Representative surveys can in this sense be seen as a non-binding democratic
opinion poll, informing policy and decision making about the socially most desirable
course of action. Although measured through a representative sample of the whole
population, if implemented adequately, everybody affected by the implementation of the
WFD in principle has a vote. Besides eliciting public opinion, the stated preference method
goes a step further than a voting system and also inquires after respondent financial
commitment to plans, for instance as taxpayers. In economics, this financial commitment,
preferably revealed through market behaviour, is considered a more reliable indicator of
the value people attach to a good, service, programme, policy, or course of action, as it
reflects the real trade-off under scarce financial resources between different wants and
needs. Given limited budgets and the fact that money can only be spent once, the public at
large is consulted to answer the same question policy makers face: how much is society at
large willing to give up for environmental improvement. It is important to point out that in
a stated preference exercise respondents are not actually asked to pay, they are asked for
their behavioural intent.4 On the other hand, policy makers are not actually spending their
own money either, although public scrutiny and accountability have become important
facts of political life, even years after decisions have been taken. Much of the academic and
political debate surrounding the application of this specific element in stated preference
research in environmental policy can be traced back to the fundamental question whether
604
R. Brouwer
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citizens can be framed into behaving as an individual consumer when asked to trade off
their money income for public goods like the environment (e.g. Blamey et al. 1995, Curtis
and McConnell 2002), the ethics underlying the privatisation of public goods and the
measurement of the strength of preferences in monetary terms (e.g. O’Neill 1997).
Although important to legitimise the use of stated preference methods in environmental
policy, it goes beyond the scope of this paper to address these latter issues in more detail
here.
In the next section, the results are presented of a mandated CBA of WFD
implementation in the Netherlands, illustrating some of the problems encountered when
trying to interpret the outcomes in terms of disproportionate costs. This is followed by the
presentation of a stated preference study in the context of the implementation of the
WFD, illustrating how the stated preference results were used as a public consultation tool
to inform policy and decision makers about public willingness and ability to pay for the
implementation of the WFD. This latter measure, so it is argued, can be used as one of the
benchmarks or thresholds to define disproportionate costs at the level of the individual
taxpayer.
4.
The costs and benefits of the WFD in the Netherlands
In order to get an idea of the expected costs and benefits of WFD implementation, the
Dutch parliament demanded in 2005 that a strategic CBA be carried out. Water managers
were asked to supply information about the potential measures necessary to reach a ‘good
ecological status’ in their basin. A distinction was made between three different WFD
implementation levels: a minimum, intermediate and maximum implementation scenario
for both surface and groundwater. The contribution of each of these scenarios to the
environmental objectives in the WFD were assessed in a qualitative way in terms of their
effect on water chemistry, ecology and eutrophication. The maximum scenario obviously
contributes most to reaching good chemical and ecological status and the minimum
scenario least. In addition, water managers were asked to provide information about the
direct costs of current policy, i.e. the measures already planned to be implemented until
and including 2009 (V&W 2006a). Table 1 summarises the results.
The total costs refer to the total direct costs of technical measures needed to reach the
WFD objectives of good ecological status. Possible indirect economic effects are not
accounted for. Overall, investments in chemical water quality improvement constitute 60–
70% of the total expected investment costs. The remainder mainly consists of investment
costs related to ecological restoration of water bodies. An explanation for the high share of
investments in chemical water quality is that many measures aimed at improving water
quality have already been undertaken in the past decades and the cost-effectiveness of the
Table 1.
Estimated total costs and benefits of WFD implementation in the Netherlands.
Present value costs (ebillion)
Present value benefits (ebillion)
Net present value (ebillion)
B-C ratio
Source: Adapted from V&W 2006a.
Current policy
2005–2009
Minimum
2009–2015
Intermediate
2009–2015
Maximum
2009–2015
3.5
Not known
Not known
Not known
8.8
1.7 (1.3–2.0)
77.1
0.19
15.9
4.6 (3.7–5.5)
711.3
0.29
26.6
5.0 (4.0–6.0)
721.6
0.19
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Journal of Environmental Planning and Management
605
remaining measures is considered relatively low (V&W 2006a). If the total costs of
WFD implementation are compared with the total costs of water management in 2006 in
the Netherlands (e3.8 billion, 60% of which is for water quality management (V&W
2007)) the WFD is expected to result in an annual cost increase after 2009 of around 25 to
75% depending on the implementation scenario used. On the basis of the French criterion
that cost increases should not exceed 20% (see section 2), even the minimum WFD
scenario would thus involve disproportionate costs. In the CBA, the additional costs for
the period 2009–2027 are also estimated in case the deadline of meeting the WFD
objectives is extended (‘time derogation’). The total costs are in that case about 15% lower
due to the extra time given to implement the necessary measures to reach the WFD
objectives.5
The uncertainties surrounding the estimated cost figures are large. The Water
Ministry believes that the figures presented in Table 1 are likely to be an overestimate of
the actual costs (personal communication, van der Veeren, 2007). For example, some
water managers also included the costs of additional flood protection as a proxy for
some of the floodplain restoration measures. A quick scan of the available data suggests
that these costs make up approximately 10% of the total costs. Additionally, some of
the cost figures include overly expensive, non-effective measures that are unlikely to be
undertaken. On the other hand, many examples exist of public investment decisions where
ex post costs exceed ex ante costs significantly. Besides possible indirect effects, administration, monitoring and other transaction costs are in most cases also not included in the
cost estimations. Unfortunately, more precise information about the uncertainties and
assumptions surrounding the cost estimates is not available. Given the explorative phase
of the policy cycle in which the CBA was carried out, it is assumed here that the costs
can be 25–50% higher or lower.6 Assuming that the total annual costs are 50% lower than
the cost estimates presented in Table 1, the annual cost increase as a result of the WFD
over and above current expenditures for water quality management is between 12 and
40%.
A quick look at the market and non-market benefits of WFD implementation based on
a very rough benefits transfer study carried out in 2006 (Witteveen en Bos 2006) showed
that the most important benefits consist of the increased value of houses near water bodies
with improved water quality (40% of the total benefits), followed by the economic value of
nature conservation (30%), recreation (15%) and biodiversity (15%). For most benefits
market values, including expenditures and cost estimates, were used as proxies. The
present values of these benefit estimates are also presented in Table 1. A range is presented
based on the authors’ of the study own expert judgement that the benefit estimates can be
approximately 20% higher or lower. The values were used to get a first idea about the
order of magnitude of the benefits involved.
The NPV is negative under each WFD implementation scenario (the discount rate used
for both costs and benefits is the prescribed 4% for government investments). On average,
the estimated benefits are less than 25% of the total costs. Going from the minimum to the
intermediate scenario and from the intermediate to the maximum scenario, the estimated
costs increase with 80 and 70% respectively whereas the benefits first increase with almost
a factor 3, but then increases by less than 10% from the intermediate to the maximum
scenario.7
Assuming that the total economic costs of WFD implementation are half of the total
costs presented in Table 1 and relating these cost estimates to the benefit estimates’ upper
bounds, the costs are on average across all three implementation scenarios still a factor
two higher than the estimated benefits. The question is whether this is considered
606
R. Brouwer
disproportionate or not. In its December 2006 policy note, the government considered the
maximum scenario disproportionately costly based on the information provided in Table 1
(V&W 2006b, p. 59). Another way of finding out is to ask those who are expected to pay a
large proportion of the costs of WFD implementation how much they are willing and able
to pay.
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5. Stated preferences for the implementation of the WFD in the Netherlands
5.1. Survey design
In October 2003, 5000 questionnaires were sent by mail to a random selection of Dutch
households. In the questionnaire they were asked about their knowledge, perception and
attitudes towards current water quality in the Netherlands and the introduction of future
water quality standards as a result of the implementation of the WFD. The survey was
commissioned by the Directorate-General Water of the Dutch Ministry of Transport, Public
Works and Water Management. The questionnaire was developed using Dillman’s (1978)
total design method and consisted of 40 thoroughly pre-tested questions, the majority of
which (90%) were closed ended.8 The CV part of the questionnaire followed standard
procedures (e.g. Arrow et al. 1993). WTP was elicited using a dichotomous choice (DC)
format with 14 bids, varying from e1 to e200 per household per year. A one-page information
sheet was used to inform respondents about the WFD, the current status of water quality in
the Netherlands, sources of pollution (households, agriculture, industry), possible measures
to improve water quality and a general description of good ecological status as follows:
Good ecological status means a cleaner water environment for human beings and wildlife in
urban and rural areas, resulting in improved opportunities for a variety of water use functions
as depicted on these pictures.
(Respondents were referred to a website if they wanted more detailed information about water
quality in the Netherlands)
In view of the fact that the WFD objectives of good chemical and ecological status were
unknown and not specified at the time of the survey, a general description and
photographs were used to illustrate the expected impact on water-based recreation and
wildlife in and near water. The valuation scenario was developed with the help of RIZA
water quality experts.
After respondents were informed about the fact that they and other sources of
pollution currently already pay for water quality management based on the polluter pays
principle, but that additional measures are necessary to reach a good status, they were first
asked for their WTP extra in principle for reaching a good ecological status for all water
bodies in the Netherlands, and if they replied ‘yes’, whether they were willing to pay a
specific bid amount in addition to what they currently pay. It was emphasised that
everybody would pay and that the money would be used exclusively to improve water
quality. General income taxation was used as a payment vehicle given the fact that the
valuation scenario referred to a national implementation plan, and pre-test results showed
that it was considered important that ‘others will pay too’.
5.2.
Representativeness
In order to encourage people to complete and return the questionnaire, avoid self-selection
and get a cross-section of Dutch households, the first 100 respondents were given a gift
Journal of Environmental Planning and Management
607
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voucher worth e25. The response rate was 27% (N ¼ 1350). Although not high, this
response rate is normal for mail survey research in the Netherlands (Brouwer 2006). The
sample was representative for the Dutch population as a whole in terms of household size
and composition, household income and the spatial distribution of respondent place of
residence across the country. Average disposable household income was e24,000 annually.
Men were slightly over-represented (60%) (while this is 50% for the population as a
whole) and also the age group between 40 and 80 was slightly over-represented. The
average age in the sample was 52, which was partly due to the fact that respondents
participating in the survey had to be 18 years or older.
5.3. Public perception of water quality and sense of urgency
One-third of the Dutch population is unhappy about current water quality. Significant
differences are found between inland and coastal waters (Figure 1). Almost 40% perceive
freshwater quality in rivers, lakes, creeks and canals as poor while just over 25% feel the
same about coastal waters. Only one-fifth of the sample population considered water
quality satisfactory. Hence, although not a majority, most respondents perceived water
quality as poor, where the quality of coastal waters is generally judged superior to that of
inland freshwater bodies. A total of 10% did not have an opinion and one-third thought
water quality was neither good nor bad.
When asked for their perception of how water quality has changed over time during
the past decade, 45% believed that freshwater quality has improved, against 25% who
believed the quality of coastal waters is better now than it was 10 years ago (Figure 2). A
minority of 15% felt that water quality deteriorated. One-third of all respondents had no
idea how water quality has changed over the past 10 years. In reality, the concentration of
nutrients and heavy metals in Dutch coastal and inland surface waters has decreased
significantly over the past decades (V&W 2004a).
A total of 45% of all respondents indicated that they felt insufficiently informed about
water quality. A small majority of 51% was happy with the current information supply. A
majority of 85% wanted to be informed about water quality and considered this
important. When asked about their knowledge of existing water quality standards, a
Figure 1.
Public perception of current water quality in the Netherlands.
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Figure 2.
R. Brouwer
Public perception of water quality changes in the Netherlands over the past decade.
quarter did not really know, and 5% said they had never heard of this. A total of 15%
were well aware of the existence of such standards, while approximately 55% felt they were
somewhat familiar with the existing water quality standards.
A majority of 97% of the population considered it important to very important that
the quality of inland and coastal waters in the Netherlands improves. The most important
reasons for wanting improved water quality were concern for their own health (use value)
and the quality of life of plants and animals (non-use value), followed by wanting to be
able to swim safely and carefree in open waters in the Netherlands (use value), and the
conservation of good water quality for their children and grandchildren (non-use value).
5.4. Public WTP for the WFD and improved water quality
A total of 65% of the sample population was willing to pay extra in principle for the
implementation of the WFD to improve water quality from the current situation to good
water status. Overall, 15% protested against the WTP question because they believed the
polluter should pay (and did not believe they polluted the water) or they did not believe the
money would actually be spent on improving water quality. Protest bidders typically
object to the imposed market structure in a CV study (e.g. Jorgensen et al. 1999,
Meyerhoff and Liebe 2006). A high protest rate questions the validity of the valuation
design (Arrow et al. 1993). Criteria to determine whether or not a respondent is a
legitimate zero bidder to a WTP question or a protest bidder often are arbitrary, if
reported at all in CV studies. No strict guidelines exist regarding acceptable protest rates.
The notion of acceptability is highly subjective in this context. The protest rate of 15%
found in this study is considered too low to invalidate the results, but indicates that the
results have to be interpreted with the necessary care because approximately one in every
eight respondents seemed to object to the proposed market construct and valuation
scenario. Another 15% were not willing to pay for improved water quality mainly because
of income constraints.9 In the study 5% were unsure whether they were willing to pay for
improved water quality.
Approximately 70% of all respondents were aware of the fact that they already pay for
water quality management. However, 61% had no idea how much they currently paid. Of
those households who were able to tell how much they currently paid, more than 40% said
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Journal of Environmental Planning and Management
609
they were guessing. One-third of all Dutch households also do not know how they are
paying for water services such as wastewater collection and treatment or whom they are
paying for these water services.
Average WTP is estimated based on the bid curve presented in Figure 3, representing
the cumulative frequency of ‘yes’ votes at increasing bid levels. As expected, the slope of
the curve goes downward as the probability of saying yes to higher bid amounts decreases.
Using the Turnbull estimation procedure (Haab and McConnell 1997) yields a lower
bound average WTP of approximately e90 per household per year with a 95% confidence
interval of around e80–100. The parametric linear-logistic result (e.g. Hanemann and
Kanninen 1999) is slightly higher, namely e105 per household per year with a 95%
confidence interval between e75–135. The parametric logistic estimate is hence less
accurate than the non-parametric Turnbull estimate.
Compared to what Dutch households paid on average for water in 2003 in terms of
taxes and charges (e470), this implies that they are willing to pay maximum 22% extra for
the implementation of the WFD. So, if taxpayers are asked how much they value the
WFD and how much they are willing and able to pay extra for the implementation of the
WFD, the total costs should not exceed more than 22% of what they are currently paying,
or 0.4% of average household income in the Netherlands in 2003. This outcome could be
used as a benchmark for future price and tax increases related to water quality
improvements as a result of the implementation of the WFD.
As expected, significant differences were found between lower and higher-income
groups. Respondents having less than the average national income are willing to pay
approximately e45 per household per year, whereas respondents having more than the
national income average are willing to pay up to almost e165 per household per year.
Another interesting finding is that respondents who actively engage in water-based
recreation are willing to pay significantly more (e110/household/year) than respondents
who never take recreation in or near water (e30/household/year).
5.5. Validity and reliability
The stated preference results presented in this paper were scrutinised for their validity
and reliability in a number of ways. The internal consistency and validity was thoroughly
Figure 3.
WTP bid curve for improved water quality as a result of implementation of the WFD.
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610
R. Brouwer
tested through conventional statistical analysis, confirming a priori expectations concerning the direction of influence of statistically significant explanatory factors of
stated WTP such as bid and household income level. The explanatory power of the
estimated model was almost 40% (based on the adjusted R-square). Furthermore,
consistency and validity were carefully checked by analysing protest bids and respondent
understanding of the information provided in the survey and the WTP question.
Respondents were asked about their perception of the amount and quality of the
information provided in the questionnaire, how easy or difficult it was to answer the WTP
question in particular based on the information provided, and how clear it was what they
were being asked to pay for. A total of 20% of all respondents said that they found it
(very) difficult to answer the WTP question (measured on a 5-point scale ranging from ‘not
difficult at all’ to ‘very difficult’), while 92% of the sample population said that the
information provided in the questionnaire to answer the WTP question was (more than)
sufficient (measured on a 4-point scale ranging from ‘more than sufficient’ to ‘completely
insufficient’). Ninety-four per cent said they knew exactly what they were being asked to
pay for (measured on a 4-point scale ranging from ‘completely clear’ to ‘completely
unclear’). These findings are also important additional indicators of the reliability of the
CV results.
Finally, the convergent validity of the study results were also tested as the study aimed
to provide an indicative upper limit for the expected future increase in household taxes as a
result of the extra costs of WFD measures. Comparing the stated preference estimate, for
example, with the results from a meta-analysis of international water and wetland
contingent valuation studies (Brouwer et al. 1999), the value estimate for overall water
quality improvement found in this study appears to be very similar to the values found in
other international studies. The average value in previous valuation studies for water
quality control was e90 per household per year. This too provides confidence in the
results.
5.6. Economic value of WFD implementation
Aggregated across the whole Dutch household population (7 million households),
assuming that the sample is an unbiased representation of the total population and
accounting for the 15% protest rate, a total annual value results of between e476 and 595
million (average equal to e535 million).10 Discounted over the same time period (2009–
2015) as the costs in Table 1, the present value of the non-market benefits is equal to e3.3
billion (95% confidence interval e3.0–3.7 billion). This is about two times higher than the
total benefits estimated under the minimum scenario in Table 1, but e1.3 billion lower
than the intermediate scenario. Comparing this TEV with the total costs under the
maximum implementation scenario, the latter are a factor eight higher than the estimated benefits (or a factor four if the total costs turn out to be half the size of the cost
figure presented in Table 1). Discounted over a 50-year time period in view of the fact
that the flow of benefits will not stop after 2015, the present value is almost e12 billion.
This is close to the lower bound of the estimated costs for the maximum implementation
scenario.
6.
Conclusions
This paper discussed the concept of disproportionate costs in the WFD and the possible
role of stated preference research as a public consultation tool to inform policy and
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Journal of Environmental Planning and Management
611
decision making about public willingness and ability to pay for the environmental benefits
of WFD implementation. The concept of disproportionate costs is ill defined in the WFD
and probably for good reasons, i.e. to provide EU MS with a way out if they feel the
implementation puts too much burden on their economy as a whole, individual sectors or
river basins. A brief look at European approaches shows that there is little to no consensus
about how disproportionate costs can or should be defined. Some approaches are based on
cost estimations only, others also refer to benefits. From an economic point of view, CBA
would seem an appropriate starting point to address the issue of disproportionate costs.
However, disproportionate costs are not the same as economic efficiency, as this would
require that legislation clearly defines disproportionate as costs exceeding benefits and this
is not the case in any of the European Directives where similar escape clauses have been
included.
Through a strategic CBA of WFD implementation in the Netherlands it is shown
that – as argued in the WATECO Guidance Document – whether or not costs are
considered disproportionate is highly arbitrary and subjective. The outcome of the CBA
gives an indication of the costs and benefits involved, and may give some clues as to
whether or not the costs will possibly be considered excessive in relative terms compared to
the benefits, but the decision whether costs can, for example, be a maximum of two, three
or four times the expected (monetary) benefits is highly subjective. It should be noted that
the CBA presented here did not address the issue of the distribution of costs and benefits.
The results of the Ministry commissioned stated preference study presented in this paper
were not used in the CBA because it was not possible to relate these results to the three
WFD implementation scenarios. The valuation scenario used in the stated preference
study refers to full implementation of the WFD. This corresponds with the government’s
maximum implementation scenario where the environmental WFD objectives are assumed
to be achieved 100%, whereas the minimum and intermediate implementation scenario
imply less than 100% achievement of the environmental WFD objectives. Under the
maximum implementation scenario, the estimated benefits appear to be only a fraction of
the estimated total costs irrespective of the benefit estimate used (i.e. from the quick scan
or the stated preference study), even when the total costs turn out to be, for example, only
half of what was predicted.
Setting aside the uncertainties surrounding the welfare implications of the WFD, the
relevant questions are (1) what is an acceptable cost level to those who decide about the
WFD implementation in relation to the expected environmental benefits; and (2) what is in
turn the acceptability of this decision to those who bear the financial burden associated
with this decision. The potential role of stated preference research in answering this second
question was highlighted in this paper, and not so much the estimation of a TEV based on
stated preference research even though substantial non-use values are expected to be
involved. It is argued that the use of stated preference methods in the WFD serves two
purposes at the same time: a tool for public consultation and to provide insight in what
taxpayers or the broader public as an important target group of WFD implementation are
willing and able to pay for water quality improvements. This social value may serve as an
important benchmark for future price and tax increases related to water quality
improvements at the level of individual households as a result of the implementation of
the WFD. Obviously, other relevant benchmarks have to be developed and applied to
other target groups such as agriculture and industry where the financial implications of
the environmental and resource costs of WFD implementation on the solvability and
viability of the sector as a whole and individual companies are expected to play an
important role.
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R. Brouwer
Acknowledgements
The help and support of the Directorate-General Water of the Dutch Ministry of Transport, Public
Works and Water Management for allowing access to the cost and benefit data presented in this
paper are gratefully acknowledged, as well as the valuable comments from two anonymous referees
on an earlier version of this paper. Thanks are due to Rob van der Veeren (Rijkswaterstaat) and
Jetske Bouma (Institute for Environmental Studies) for their help with the interpretation of the cost
and benefit estimates in the pre-feasibility CBA. The views expressed in this paper do not necessarily
represent the views of the Dutch Ministry of Transport, Public Works and Water Management. The
author is, as always, solely responsible for the content of this paper.
Notes
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1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
The European Commission currently funds the research project AquaMoney (SSPI-022723),
which aims to develop guidelines for the economic valuation of the environmental and resource
costs and benefits related to the WFD. The project focuses specifically on non-market benefit
assessment of WFD implementation. More information about this project is found on the
project website http://www.aquamoney.org
The practical selection procedure of a cost-effective programme of measures may in this sense
be better represented in terms of a multi-criteria analysis (see, for example, Mysiak et al. 2003).
Low response in a stated preference application may also have serious consequences for the
sample’s representativeness and invalidate the results (e.g. Arrow et al. 1993).
Given the absence of direct or indirect markets for many public environmental goods and
services, stated preference methods are used to simulate market behaviour, resulting in a
weaker indicator of hypothetical behaviour or expression of behavioural intent (e.g. Fishbein
and Ajzen 1975, Ajzen and Fishbein 1980).
In the December 2006 WFD policy note (V&W 2006b, p. 61) the Dutch government indicated
that it considered time derogation a necessity in view of the extent of the total costs of WFD
implementation by 2015.
In the Netherlands, a standard methodology and procedure have been developed by the
Ministry of Transport, Public Works and Water Management (V&W 2004b) for the calculation
of the costs of infrastructure projects, including water infrastructure, the so-called ‘Project
Ramingen Infrastructuur’ (PRI) methodology. In this methodology cost categories and cost
types are identified, which have to be reported in the explorative, planning and implementation
phase of investments in water infrastructure projects. The required degree of accuracy and
confidence surrounding these cost estimates differs depending upon the stage in the decisionmaking cycle. The variation coefficient has to be smaller or equal to 50% in the explorative
stage, 25% in the planning stage and 10% in the actual implementation stage.
This is interpreted as decreasing marginal returns (V&W 2006b).
The questionnaire was pre-tested and implemented with the help of a professional marketing
bureau located in Amsterdam. The full report (in Dutch) is available at http://www.rijkswater
staat.nl/rws/riza/home/publicaties/rapporten/2004/2004_013.htm
When given the opportunity, one-third of these respondents are willing to pay a smaller amount
of money than the presented bid amount over and above their current taxes.
The characteristics of those who did not respond to the survey are assumed to be more or less
equal to those of the respondents. Assuming that WTP related to the non-response is equal to
zero yields an economic value of e145 million annually and a present value of e900 million over
the period 2009–2015 at a 4% discount rate.
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