The Case for Valuation Studies in the Water Framework Directive

May 2005


Background to research

The EU Water Framework Directive (WFD) introduces several innovations into water management and policy in Europe. Central to these is integrated water management at the scale of the river basin. The incorporation of economic approaches throughout the implementation of the WFD constitutes also a clear innovation. The most prominent economic aspects of the WFD concern the selection of cost-effective sets of measures for achieving good ecological status/potential in all water bodies, the implementation of the principle of cost recovery for water services in line with the polluter-pays-principle, and the decision on derogations, if achieving good status should prove to be disproportionately costly.

Objectives of research

This study sets out from the draft methodological framework for cost-effectiveness analysis in the WFD developed by RPA for Defra. This framework makes suggestions on the procedure for the selection of measures, and on the cost and benefit information to support an assessment of cost disproportionality in decisions on derogation. Against this background, the present study was set up to examine how valuation studies inform decision making processes, and which role they can play for economic assessment tools. The present study identifies alternative approaches to support WFD-related decision making especially for decisions on straightforward cases, taking account of the specific situation in Scotland and Northern Ireland in terms of complexity of hydro-situations and availability of information., Finally, it discusses the degree to which valuation of costs and benefits is required in order to make good regulatory decisions in the implementation of the WFD in Scotland and Northern Ireland.

Key findings and recommendations

For those decisions in the WFD implementation where economic considerations will play a role, a number of assessment tools are available, ranging from expert judgement on simple cases to different types of cost-benefit analysis or multi-criteria analysis for the most complex decisions. Only few of these assessment methods require input from monetary valuation studies in the form of monetised costs or benefits. In general, the most complex decisions requiring input from valuation studies will relate to

  1. the assessment of disproportional costs in the context of derogations and
  2. the selection of measures to be implemented nationally which will require a full cost-benefit analysis (including the monetisation of all relevant effects). For the selection of local measures, valuation studies are not expected to play a major role, except in cases of significant non-water-related externalities that may be assessed through benefits transfer.
The challenge is to develop a robust screening method for sorting decision situations by order of complexity, targeting the use of elaborate economic assessment tools to a limited percentageof (complex and policy-relevant) cases. An initial proposal for such a screening method is developed in this study, which needs to be further tested and refined.

Key words: Water Framework Directive, cost-effectiveness, programme of measures, disproportionate cost, monetary valuation, economic assessment.

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