Cost recovery and pricing in the Blueprint

On November 14, the European Commission adopted “A Blueprint to Safeguard Europe’s Water Resources”, commonly known as the Blueprint. The Blueprint is made of 18 measures intended to increase the EU’s political efficiency in the field of water policy. These 18 measures were put forward after evaluation of the European legislative framework of water management through a procedure called Fitness Check. The Fitness Check identified inconsistencies, deficiencies and difficulties in implementing the Water Framework Directive (WFD ) adopted in 2000 as well as various associated policies (urban wastewater, nitrates, groundwater, flooding...). Most of the measures suggested by the Blueprint have to do with the economic and financial aspects.

1. Article 9 of the WFD

Article 9 of the WFD is about cost recovery and pricing. The costs taken into account are the production and distribution services of drinking water, treatment services and the environmental preservation of water bodies. At first glance, the WFD’s Article 9 seems to grant a lot of freedom to the Member States on how to recover these costs. In reality not at all. Cost recovery is based on the 'polluter pays' principle (see Annex III of the WFD entitled Economic Analysis) and this effectively precludes general taxation.

Polluters are the domestic, industrial and agricultural water users. Article 9 also advocates a water pricing policy which encourages users to save water in order to better achieve the environmental objectives of the WFD. Thus, Member States have simply implemented a billing of users based on the amount of water they consume. By holding water users accountable as a means of justification, this water bill actually transforms them into mere consumers.

2. Diagnosis

The Blueprint rightfully asserts that all Member States are facing funding difficulties that prevent them from achieving the objectives set by the WFD and other associated policies. Thus, certain Member States were condemned by the Court of Justice of the EU for breaching the WFD (Greece, 2008, Italy, 2007; Portugal, 2006), the urban waste water Directive (Spain, 2011; Ireland, 2009...) the Nitrates Directive (France, 2013...).

There are many causes for these financial difficulties and some of them are directly linked to the principle of cost recovery and pricing, defended by Article 9 of the WFD.

Two particularly evident causes explain financial difficulties:

1 - Domestic and industrial water consumption amongst users is decreasing all across Europe

In France, the decrease amounts to 25 % in the past 20 years. This decrease is linked to a reduction in water consumption of home appliances, to changing lifestyles and mindsets, to the improvement of industrial processes. Meanwhile, as a result of many up to standards of infrastructures due to increased pollution, as well as the intensive and necessary renewal of antiquated and poorly maintained networks, the fixed costs related to services increase. The water bill, however, relies heavily on the consumption of domestic and industrial users: the more water is being saved, the harder it is to finance the services.

2 - The 'polluter pays' principle is poorly applied

In most Member States, agricultural users are the ones who consume and pollute the most waters while they contribute the least to the cost recovery. In France, home users consume 24% of billed water and contribute 74.5% and 89.9% to the royalties of "modernization of sewage networks" and "contamination" of water agencies, whereas agricultural users consume 48% of billed water and contribute 3.6% and 0.5% to these royalties of water agencies.

3. Solutions proposed by the Blueprint

In paragraph 2.3 of the Blueprint entitled "EU water efficiency: problems and solutions", the European Commission proposes to strengthen the principle of cost recovery and pricing exposed in Article 9 of the WFD instead of questioning it.

The incapacity to finance such services, that should enable the WFD’s environmental objectives to be achieved, is due to an insufficiently transparent and incentivized pricing[1].

The Blueprint recommends the development of water meters to help (i) establish an incentivized pricing, (ii) to determine the fair price of water[2], (iii) to identify what the European Commission refers to as ecosystem services (see: Commission’s Blueprint puts Water and Nature Up for Sale) and give them a price.

The Blueprint reaffirms that water is a scarce resource, that it needs to be priced for its conservation[3]. Water continues to be, for the European Commission, a commodity, as it is characterized precisely by its scarcity and price. Consequently, the full cost recovery continues to rely on billing the water user. The right price will be to increase the price per m3 of water consumed and introduce the cost of ecosystem services, thus worsening social injustice for fair access to water. It should be noted that the European Innovation Partnership for Water supports the idea of charging the user, not only by the volume of water consumed, but also to achieve objectives (such as decreased leakage in supply networks...). This idea is driven by the private operators, who see their profit margins eroding due to lower water consumption in cities.

Finally, the Blueprint proposes several measures to ensure that the polluter is indeed the one who pays. The main measure is to link the granting of Common Agricultural Policy (CAP) subsidies to the farmers’ "efficient" water usage (water-saving irrigation and reduced pesticide pollution). It makes good sense but is flimsy when put into practice. Currently, intensive agriculture accounts for most of the CAP subsidies. It also consumes and pollutes the most water. The reorientation of subsidies should be made on the basis of environmental criteria such as water, but also from the perspective of food sovereignty and short circuit trading systems (see: Cultivating water bubbles). The Blueprint however makes no mention of it at all.

In all Member States, funding difficulties have resulted in reports[4], suggestions and in some cases to the implementation of new measures. On December 28, 2012, in Italy, the Regulatory Authority for Electricity and Gas implemented by the Monti government adopted a new way of pricing for water services which is in direct contradiction with the results of the referendum in June 2011. In June 2013, France’s Prime Minister received a report on the evaluation of water policy[5]. This report aims to "Rethink the economic model for financing water" but is limited due to the framework set by the WFD and Blueprint.

[1] "incentive and transparent water pricing is not applied across all Member States" Blueprint [COM (2012) 673 of 14.11.2012]

[2] "Putting the right price tag on water ", Communication from the Commission in the European Parliament and Council - "Addressing the challenge of water scarcity and droughts in the European Union" [COM (2007) 414 18.7.2007]

[3] "Not putting a price on a scarce resource like water can be regarded as an environmentally-harmful subsidy" Blueprint [COM (2012) 673 of 14.11.2012]

[4] Assessment of cost recovery through pricing of water - EEA's Technical report No 16/2013

[5] Rapport d’évaluation de la politique de l’eau en France - Mobiliser les territoires pour inventer le nouveau service public de l’eau et atteindre nos objectifs de qualité. Michel Lesage, juin 2013.