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1. Introduction
The Water Framework Directive (WFD) 2000/60/EC requires Member
States to carry out the environmental and economic
characterisation of all water catchments. The 2004 Water Policy
Framework Regulations transposed under LN194/2004 on the 23rd
April 2003, requires the Malta Resources Authority and the Malta
Environment and Planning Authority to undertake the economic study
of the water catchment district as prescribed by the Directive.
2. The Different Functions of
the Economic Analysis in the Water Framework
Directive
The economic issues of the WFD are mainly dealt with in Article 5
(Economic analysis of water use), Annex III (Economic
analysis) and in Article 9 (Recovery of costs for water
services) of the Directive. However, economic elements are
found in other parts of the Directive’s text. Overall, the main
functions of the economic analysis include:
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To carry out an economic analysis of water uses in the water
catchment district;
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To assess trends in water supply, water demand and investments;
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To help the designation of protected areas by identifying
economically significant aquatic species;
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To designate heavily modified water bodies based on assessment
of impact (including economic impact) on existing uses and costs
of alternatives for providing the same beneficial objective;
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To assess current levels of cost-recovery;
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To support selection of programme of measures on the basis of
cost-effectiveness criteria;
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To assess the potential role of pricing in programmes of
measures – implications on cost-recovery;
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To estimate the need for potential (time and objective)
derogation from the Directive’s environmental objectives based
on assessment of costs and benefits and of costs of alternatives
for providing the same beneficial objective;
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To assess possible derogation resulting from new
activities/modifications, based on assessment of costs and
benefits and costs of alternatives for providing the same
beneficial objective;
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To evaluate costs of measures to identify cost-effective way to
control priority substances.
3. Economic
Elements of the Water Framework Directive
a)
Recover of costs of water services
Article 9
requires member states to ensure that by 2010 that water pricing
policies act as an incentive for more efficient water use and
thereby contribute to the environmental objective of the
Directive. It also requires Member states to secure adequate
contributions of different water uses (disaggregated into at least
industry, households and agriculture) to the recovery of costs of
water services. Article 9 permits also the continuation of
established practices that are not in line with these two
provisions, providing it does not compromise the achievement of
the environmental objectives of the Directive.
b)
Characteristics of the water catchment district, review of the
environmental impact of human activity and economic analysis of
water use
Article 5
of the Water Framework Directive requires an economic analyses of
water use to be undertaken for the water catchment district by
2004, according to the technical specifications of Annex III of
the Directive. The analysis should provide sufficient information
to make necessary calculations in relation to Article 9, and to
underpin an assessment of the cost effectiveness of different
combinations of measures for achieving the environmental
objectives of the Directive.
4. The three-stepped approach
The
guidance document on the economic elements of the Water Framework
Directive
sets out a three stepped approach to carry out the economic
analysis in a logical way. The document,
as endorsed by the EU
Water Directors in June 2002, contains three key elements of
guidance, commonly referred to by the acronym WATECO and
listed below:
Step 1
Characterising in terms of water uses looking at both the economic
importance of water uses and the dynamics of the water catchment
in terms of expected changes in key economic drivers and driving
forces.
Step 2
Identifying water bodies or groups of water bodies at risk of not
achieving the environmental objectives of the Directive by 2015 –
this step integrates the assessment of today’s pressures and
impacts with the analysis of trends in key economic drivers and
driving forces.
Step 3
Supporting the development of the programme of measures to be
integrated into the river basin management plans through cost
effective analysis and justifying from an economic point of view
(cost and benefit assessment) possible (time and objective)
derogation.
Table 1 of the guidance document shows the key inputs required
from the economic analysis and other disciplines throughout the
three phases.
Table 1
5. Terms of Reference for the 2004 Economic
Characterisation
(STEP 1)
As
referred to in Article 5, of the WFD, December 2004 is the first
milestone i.e Step 1 in the implementation process of the
economic analysis. The analysis for 2004 will also identify
activities for enhancing the economic-related information and
knowledge base. This will ensure the economic characterisation can
be improved and the follow up cost-effectiveness analysis can be
adequately and timely performed by the publication of the draft
water catchment management plan in 2008.
5.1 Objectives
The objectives of
the first step of the Economic Characterisation is:
To prepare an economic analysis of
water use in order to analyse:
1.
Current water uses
and their economic importance;
2.
Future trends in
key economic drivers up to 2015;
3.
Current
cost-recovery levels of water services.
This step requires a high level of
coordination with other disciplines and stakeholders to build a common
knowledge and representation of the water catchment district.
5.2
Implementation details and process
The methodological
process that needs to be followed by the consultant and the tasks
required are shown in the table below:
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Stage/Process |
Tasks |
Information base |
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1.
Undertake the economic analysis of water uses.
Objective:
Assess how important water is for the economy and for the
socio-economic development of the water catchment district
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Identify human pressures on water bodies;
1.
Localise water uses in the river basin district;
2.
Identify water uses and services by socio-economic sector
(agriculture, industry, households and recreation);
3.
Assess the relative socio-economic importance of water uses;
4.
Identify areas designated for the protection of economically
significant aquatic species. |
1.Water abstractions and discharges by socio-economic
categories and localisation;
2.Economic importance of main water uses: turnover,
employment, income, number of beneficiaries;
3. Information (for example, quantity, prices or turnover
depending on availability) for characterising economically
significant aquatic species. |
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2. Investigate the dynamics of the water
catchment. Projecting trends in key indicators up to 2015
Objective:
Provide economic input into the
development of the baseline scenario and the water-body risk
assessment.
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1. Assess trends of key
hydrological and socio-economic factors/drivers that
are likely to affect pressures (demography, climate, sector
policies, e.g. common
agricultural policy, technological development);
2.Identify proposed measures and planned investments for
implementing existing water legislation;
3 Forecast changes in pressures based on changes in economic
and physical drivers and proposed water-related measures;
4 Construct a Business As Usual scenario for pressures;
5. Conduct a sensitivity analysis on the baseline scenario and
identify optimistic and pessimistic scenarios.
(NB Ensure
coherence with projections and trends used for other river
basins for national and EU policies and climate change.
The business as
usual scenario may first build on certain changes and thus
need to be updated beyond 2004 in order to integrate changes
in uncertain parameters.)
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1.Prospective analyses of likely development of key economic
sectors/economic drivers influencing significant pressures;
2.General information on population growth, economic growth,
sector growth patterns, future policies and forecasts of the
impact of climate change;
3.Inventory of existing measures (and costs) for complying
with existing water legislation;
4. Identification of technological developments in the
water sector.
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3. Asses current levels of recovery of
costs in accordance to Article 9 of the Water Framework
Directive
Objective:
Definition of
cost-benefit by sector.
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1.Estimates costs of water services, including financial,
environmental and resource costs;
2. Estimate the price/tariff currently paid by the users;
3. Assess the extent of cost recovery by water service and
sector;
4. Assess the contribution to cost recovery from key water
uses;
5. If felt necessary, initiate review of incentive pricing
properties of existing tariffs.
After December 2004, further refinement of
cost-recovery and pricing assessment undertaken by December
2004, by developing studies on financial cost recovery and
incentive pricing.
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1.Estimation of financial costs (broken down in operating
maintenance and capital costs);
2.Tax transfers, administrative costs and any other costs.
(to be evaluated);
3. Environmental and resource costs as required. (to be
evaluated);
4.Extent of financial and environmental cost-recovery;
5. If activities initiated for
reviewing incentive pricing: current pricing structure and
price elasticity, affordability criteria.
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