One of the general objectives of the socio-economic assessments carried out as part of the BRIDGE project is to support discussion on what role economics should play in the process of setting threshold values. This section of the report first of all characterizes the role of economics considered by the WFD. The steps of economic analysis envisaged by the WFD formed basis for the general methodology of socio-economic assessments as part of the BRIDGE, which is presented afterwards in this section. The section ends with describing how this general methodology has been applied in the Latvian case study.
2.1 The role of socio-economics in the WFD
The WFD is one of the first European Directives in the domain of water, which explicitly recognizes the role of economics in reaching environmental and ecological objectives. The Directive calls for the application of economic principles (e.g. polluter pays principle), approaches and tools (e.g. cost-effectiveness analysis) and for the consideration of economic instruments (e.g. water pricing policies) for achieving good water status for water bodies in the most effective manner. The Guidance Document on the Economic Analysis prepared in 2002 by the European Water and Economics Working Group (WATECO) advises various elements of the economic analysis to be integrated in the policy and management cycle in order to aid decision-making when preparing the River Basin Management Plans. The integration of economics throughout the WFD policy and decision-making cycle is presented in the figure 1.
Source: WATECO Guidance Document
Figure 1. The role of economics throughout the WFD implementation process
The main elements of the economic analysis are found in Articles 5 and 9 and Annex III in the WFD. Economic arguments also play an important role in the political decision-making process surrounding the preparation of River Basin Management Plans (in Article 4) where derogation can be supported by the strength of economic arguments when setting environmental objectives.
The economic analysis can be summarised as follows:
1) Economic characterisation of a river basin (Article 5)
• Assessment of the economic significance of water use in a river basin.
• Forecast of supply and demand of water in the river basin up to 2015.
• Assessment of the current cost recovery by estimating the volume, prices, investments and costs associated with water services, including environmental and resource costs.
2) Cost-effectiveness analysis (Article 11 and Annex III)
• Evaluation of the costs and effectiveness of the proposed programme of measures to reach environmental objectives.
3) Disproportional costs (Article 4)
• Evaluation whether the costs are disproportionate.
4) Cost recovery and incentive pricing (Article 9)
• Assessment of the distribution of costs and benefits and the potential impact on cost recovery and incentive pricing.
The first step, the economic characterisation of river basins, has been completed in 2005. The last two years (2005-2006) the preliminary risk analysis, which had been carried out for the different European river basins, was further elaborated (including the more detailed definition of environmental objectives) and start will be made with the identification of additional measures needed to reach good water status in the second step.
By the end of 2007 each EU Member State has to produce an overview of its basic and additional measures according to Article 11, from which the most cost-effective programme of measures will be developed by the end of 2008. Based on the cost-effectiveness analysis of programmes of measures, the question whether the total costs of additional measures to reach good water status are disproportionate will be addressed by the end of 2009. Finally, the financial implications of the basic and additional measures for different groups in society has to be evaluated by 2010, including the level of cost recovery, changes in the use and efficiency of economic instruments (e.g. levies, taxes, water prices) and their role in achieving a more efficient and sustainable water use.
2.2 General steps for socio-economic assessment procedure
In the common methodological framework for the socio-economic assessment procedure in BRIDGE, the steps of the economic analysis in the WFD presented in the previous sub-section have been translated in the following practical steps:
1) Socio-economic analysis of the current and future groundwater use and corresponding pressures and impacts
2) Risk and uncertainty analysis of non-compliance (“gap analysis”) 3) Identification of possible measures
4) Estimation of costs and effectiveness of possible measures to bridge the gap in cost-effectiveness analysis (least cost way to achieve quality objective)
5) Assessment of benefits of meeting quality objective and comparing them with the costs.
These steps are visualized in the figure 2 below. They are taken iteratively but can include various feedbacks to the previous levels of analysis and evaluation.
The main objective of the first step is to describe and analyse current groundwater use patterns and the pressures exerted by key socio-economic sectors, possibly resulting in non-compliance with water quality objectives. Related to this is the prediction of expected future pressures and impacts on groundwater chemical status from economic driving forces. The future socio-economic trends are estimated and translated in terms of expected future pressures and impacts on groundwater quality.
Problem identification: gap between expected and desired groundwater body status
Identification possible measures
Comparison of costs and benefits Selection cost-effective measures
Articl e 1 1a n d 1 7
Figure 2. Contribution of socio-economic analysis into the process of setting groundwater threshold values and achieving good chemical groundwater status (in relation to the relevant articles in the WFD)
In the second step, the current and future pressures from socio-economic driving forces and their expected impact on groundwater chemical status are compared with possible groundwater quality objectives. The main aims of the second step are to identify (i) the gap between expected groundwater quality (in the 2015) and the quality objective and (ii) the key factors determining this gap and the uncertainty surrounding these factors.
To conduct this step, a quality objective has to be defined that requires threshold values to be established. It is expected that threshold values used for the gap analysis are set based on purely environmental considerations. However, as indicated by the analysis presented in this
report, the economics could already play a role for defining quality objectives at this stage of the analysis.
Once the gap has been assessed (in a qualitative or quantitative way depending on available data and information), measures to meet the established groundwater quality threshold values can be proposed in Step 3. Possible measures to prevent and abate groundwater contamination need to be listed and assessed in terms of costs and effects. For each potential measure, direct financial costs and, where possible, indirect economic costs have to be estimated. Besides costs, direct and indirect effects of measures on groundwater chemical status have to be assessed. Based on this information, the least costly way to reach proposed threshold values can be estimated. In this way, the socio-economic analysis can also provide input in the process of setting groundwater threshold values – based on the assessment of the least costly way to reach groundwater threshold values.
If it is felt that proposed measures for reaching the established threshold value might be disproportionately expensive, a cost-benefit analysis has to be carried out. Water quality improvements (originating from reaching desired threshold values) may result in significant socio-economic benefits. And the aim of the last (5th) step of the analysis is to estimate whether these benefits exceed costs or not. In the latter case, possible time or objective exemptions might be justified. Thus, the socio-economic analysis underpins the justification of exemptions for setting socio-economically efficient and acceptable groundwater quality threshold values.
2.3 Policy relevance and objectives of the Latvian case study
The steps of the process of setting groundwater threshold values and achieving good chemical status for groundwater where the socio-economic analysis can play a role have been highlighted in the previous sub-sections. The steps forming the main focus of the analysis in the Latvian case study are further discussed below.
The Latvian case study focuses on the step of setting groundwater quality objectives. In practice, this means establishing threshold values but also deciding on a compliance regime to assess compliance with proposed threshold values for a given water body - the compliance regime providing the computation rules for water quality data obtained from monitoring to assess whether a water body complies with set threshold values.
As it was concluded in the process of analysis, setting quality objectives for a given groundwater body is difficult not so much because of the need to establish threshold values but also because of the absence of rules for assessing compliance. When monitoring provides limited information on current water quality, both spatially and temporally, while the spatial variability of pollution is known to be high (e.g. many point sources of pollution concentrated in a limited territory with pollution being accumulated in groundwater in many local but heavily contaminated sites), conventional approaches to assess compliance might not be relevant. In such cases, setting clear rules for assessing quality status of a water body is likely to represent a challenging task.
In Latvia, practice is to set threshold values for groundwater based on purely environmental considerations. However the issue of compliance regime or decision rules for assessing compliance has not been discussed widely in particular when socio-economic impacts that might be expected from setting up new threshold values are significant.
Thus, in addition to the objectives of BRIDGE WP5, the economic analysis in the Latvian case study aimed at supporting policy discussions on compliance regime and to illustrate the issues relevant to the definition of rules for assessing compliance for groundwater bodies. Results of the analysis illustrate the socio-economic consequences of different
compliance regimes with regards to “good” quality thresholds, results that are clearly relevant to situations where conventional approaches to compliance cannot be applied.
In light of the above, the main objectives of the case study were:
1. To analyse different compliance regimes for “good” quality in terms of their socio-economic impacts (costs and benefits);
2. To illustrate the possible implications of introducing socio-economic elements in defining compliance regimes.
Two alternative scenarios representing different compliance regimes were thus investigated and compared in terms of their socio-economic consequences and efficiency (costs and benefits, highest net benefits).
The results of the case study are also relevant to the development of the program of measures as required by the WFD. Based on a multi-criteria analysis, all pollution sources have been ranked (prioritised). Measures for achieving different quality objectives have been identified and analysed in terms of their effects and costs similarly to what is required when building the program of measures required to reach set quality objective for given water body is finalized.
The main source of pollution for the pollutant considered in the selected water body is pollution accumulated historically in shallow groundwater and soils. As restoring historically polluted areas can be very expensive, it was assumed that a program of measures for reaching “good” quality might be disproportionately costly (when the costs of reaching “good” quality significantly exceed expected benefits). The results of the socio-economic analysis were then used to illustrate assessments that might support the justification of exemptions (setting less stringent quality objectives or extending time for reaching set objectives). As part of the analysis, the costs of measures required to achieve “good” quality objective have been estimated and compared to benefits originating from water quality improvements. In this context, the specific objectives of the case study were:
1. To illustrate options for the application of methods that might help justifying longer time period for implementing measures or lower environmental objectives;
2. To indicate the most socio-economically acceptable groundwater quality objective that would keep costs proportionate.