1. Economic aspects of the Water
Framework Directive
Julia Martin-Ortega
& Klaus Glenk
Water @ Leeds Meeting
Reducing the costs of the WFD through PES
Leeds, 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 Disproportionality
The WFD allows for derogation of good ecological
status (less stringent objectives) if the costs to achieve
it are disproportionate
Two 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 Disproportionality
The WFD allows for derogation of good ecological
status (less stringent objectives) if the costs to achieve
it are disproportionately costly
Two 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 survey’s asking for
people’s WTP for water quality improvements (stated preferences
valuation)

7. Example: Phosphorous mitigation in
Scottish Lochs (Vinten et al. 2012)
 Of the 209 loch water bodies :
 66 below moderate status
 54 downgraded because of total P
concentration
Cost-assessment of P pollution
mitigation measures for managed
grassland, 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 Scottish
Lochs (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 Scottish
Lochs (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 people’s 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 Scottish
Lochs (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 Scottish
Lochs (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 better
72% lochs mitigated proportionately at cost of £5.7m/y. Additional 28% could be
mitigate disproportionately at £184.2m/y

12. Cost Disproportionality
The WFD allows for derogation of good ecological
status (less stringent objectives) if the costs to achieve
it are disproportionately costly
Two 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 mechanisms
Payment 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