1. Economic aspects of the Water Framework Directive Julia Martin-Ortega & Klaus GlenkWater @ Leeds MeetingReducing the costs of the WFD through PESLeeds, 9th May 2012

2. Background The WFD prescribes the use of economic tools and principles to attain its ecological goals This is one its most relevant and innovative aspects and has generated a great deal of research and implementation questions Economics are there to inform policy decisions (not a substitute for political choices!)

3. Aims of this talk To provide the context for payment for ecosystems services in the economic principles of the WFD through a case study in Scotland To point out key remaining challenges To introduce our current work on the peatland restoration project

4. Cost DisproportionalityThe WFD allows for derogation of good ecological status (less stringent objectives) if the costs to achieve it are disproportionateTwo aspects of it: economic efficiency: the costs of achieving the targets outweigh the benefits distributional effects: are costs and benefits equally distributed? Who are the winners and losers?

5. Cost DisproportionalityThe WFD allows for derogation of good ecological status (less stringent objectives) if the costs to achieve it are disproportionately costlyTwo aspects of it: economic efficiency: the costs of achieving the targets outweigh the benefits distributional effects: are costs and benefits equally distributed? Who are the winners and losers?

6. Economic efficiency Need to compare (CBA): The costs of the measures to achieve good ecological status With the environmental benefits: the welfare gain resulting from the improvement of water quality from the current to the good ecological status (Brouwer et al. 2010) In environmental economics: welfare improvements are measured through individuals willingness to pay (WTP) WTP is an indicator of welfare change associated with and environmental change; not a way of putting a price on water Market benefits (eg. reduced treatment costs) Substantial non-market benefits (eg. recreation & scenic beauty, health & wellbeing, regulatoring services, etc) Non-market benefits are measured via public surveys asking for peoples WTP for water quality improvements (stated preferences valuation)

7. Example: Phosphorous mitigation inScottish Lochs (Vinten et al. 2012) Of the 209 loch water bodies : 66 below moderate status 54 downgraded because of total P concentrationCost-assessment of P pollutionmitigation measures for managedgrassland, rough grazing, arable land,sewage and septic tank sources Producing mitigation costs per loch area to give a national scale marginal mitigation cost curve

8. Example: Phosphorous mitigation in ScottishLochs (Vinten et al. 2012) Marginal mitigation cost/benefits (/ha loch) 5000 marginal mitigation costs 4500 4000 3500 3000 2500 2000 1500 1000 500 0 0 0.2 0.4 0.6 0.8 1 Fraction of lochs restored to Good Ecological Status or better

9. Example: Phosphorous mitigation in ScottishLochs (Vinten et al. 2012; Glenk et al. 2011)For the estimation of benefits A survey of 432 face-to-face interviews to a representative sample High - NO of the Scottish population was carried Quality- PROBLEMS out Asking for peoples WTP for an increase in the % of loch area with Medium - FEW Quality - PROBLEMS improved water quality Obtaining marginal benefits per loch area in GES at the national (RB) scale Low - MANY Quality - PROBLEMS

10. Example: Phosphorous mitigation in ScottishLochs (Vinten et al. 2012) Marginal mitigation cost/benefits (/ha loch) 5000 marginal mitigation costs 4500 4000 3500 3000 2500 2000 1500 1000 500 0 0 0.2 0.4 0.6 0.8 1 Fraction of lochs restored to Good Ecological Status or better

11. Example: Phosphorous mitigation in ScottishLochs (Vinten et al. 2012; Glenk et al. 2011) Marginal mitigation cost/benefits (/ha loch) 5000 marginal mitigation costs 4500 marginal WTP 4000 3500 3000 2500 2000 1500 1000 Proportionate Disproportionate mitigation mitigation 500 0 0 0.2 0.4 0.6 0.8 1 Fraction of lochs restored to Good Ecological Status or better72% lochs mitigated proportionately at cost of 5.7m/y. Additional 28% could be mitigate disproportionately at 184.2m/y

12. Cost DisproportionalityThe WFD allows for derogation of good ecological status (less stringent objectives) if the costs to achieve it are disproportionately costlyTwo aspects of it: economic efficiency: the costs of achieving the targets outweigh the benefits distributional effects: are costs and benefits equally distributed? Who are the winners and losers?

13. Distributional effects This RB (national) Scottish framework helps prioritizing, but local specificities are lost We know that benefits are not homogeneously distributed across the space : Improvements in certain areas might be more valued by general public Also because individual values are aggregated at a certain spatial scale, welfare impacts are higher for water bodies closer to larger population centres For example, results from the RELU ChREAM Project suggest that the most efficient policy for the UK would be to focus upon improving sufficient urban rivers rather than all rivers in all areas (Bateman et al. 2011) Also, certain groups/sectors might benefit more than others (eg. water companies, anglers?)

14. Distributional effects The costs are likely to be borne by specific sectors (eg. farmers) Water quality mitigation measures related to farm land use might cause a redistribution of welfare from the rural to the urban population This raises concerns about the equity implications and the need for compensation mechanismsPayment for ecosystem services: PES initiatives aim to reach mutually beneficial agreements between providers and users of ecosystem services in recognition of the value of the service provided and the opportunity costs of provision Would it be appropriate that beneficiaries of GES pay to those bearing the costs of implementing WFD measures?

15. Remaining challenges Disproportionate costs decisions (including compensation and PES) require a political judgement (societal choice) But this needs to be informed by economic analysis We need to understand more about: Who are the costs bearers and beneficiaries and where are they located? What are flows of benefits and costs (how are each of the groups/sectors affected and how much)? What does this imply in terms of equity and affordability in different sectors and the need for compensation? What are the barriers/risks for introducing compensation mechanisms and the most appropriate settings?

16. Remaining challenges An important number of on going initiatives: EU Project REFRESH: Disproportionality and distribution effects specific to the WFD at the sub-catchment level Defra report (Sept 2011): Barriers and Opportunities to the Use of Payments for Ecosystem Services in England (including a chapter on freshwaters) Defra has commissioned a Best Practice Guide for Payments for Ecosystem Services (PES) VNN Project for peatland restoration

17. Remaining challenges An important number of ongoing initiatives: EU Project REFRESH: Disproportionality and distribution effects specific to the WFD Defra report (Sept 2011): Barriers and Opportunities to the Use of Payments for Ecosystem Services in England (including a chapter on freshwaters) Defra has commissioned a Best Practice Guide for Payments for Ecosystem Services (PES) VNN Project for peatland restoration

18. VNN Peatland Restoration Project Aim: To understand the delivery of peatland ecosystem services and how financial mechanisms can be used for the maintenance and improvement of those services through peatland restoration We have water working group, which integrates hydrological and economic knowledge to understand: How peatland interventions can deliver water services (quality, supply, flooding protection) How the valuation of WFD benefits can help in estimating benefits associated with peatland restoration To ultimately feed into the wider discussion on PES schemes for peatland restoration