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