PRICING POLICIES IN SUPPORT OF SUSTAINABLE
WATER RESOURCES
(a)
(21551)
10800/00
COM(00) 477
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Commission Communication concerning pricing policies for enhancing
the sustainability of water resources.
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(b)
(21552)
10801/00
SEC(00) 1238
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Commission Staff Working Paper: "Water pricing policies in theory and
practice" — Annex to Commission Communication concerning pricing
policies for enhancing the sustainability of water resources.
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| Legal base:
| — |
| |
| Documents originated:
| 26 July 2000 |
| Forwarded to the Council:
| 26 July 2000 |
| Deposited in Parliament:
| 8 September 2000 |
| Department: |
Environment, Transport and the Regions
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| Basis of consideration:
| EM of 21 September 2000
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| Previous consideration:
| None, but see footnotes below
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| To be discussed in Council:
| No date set |
| Committee's assessment:
| Politically important |
| Committee's decision:
| Not cleared |
Background
12.1 Despite a number of improvements in
recent years, the Commission takes the view that the state of
the Community's water resources in both quantitative and qualitative
terms remains a matter of concern. It also sees the proposed Water
Framework Directive[30],
which aims to improve river basin management and hence water quality,
as the main pillar of water policies during the coming decades.
An important element of the text which has now been adopted as
a Directive[31]
is the section on water pricing. This requires Member States to
take into account the principle of recovering the costs of water
services, including environmental and resource costs, in accordance
with the polluter pays principle now enshrined in the Treaty[32].
In particular, Member States must contribute to the environmental
objectives of the measure by ensuring that pricing policies provide
adequate incentives by 2010 for the effective use of water resources,
for example by industry, households and agriculture.
12.2 The Commission has now produced a Communication
(document (a)) setting out the ways in which it believes those
aims can be put into practice. This is accompanied by a staff
working paper (document (b)), which sets out in more detail the
background to the thinking in the Communication.
The present documents
12.3 The Commission says that the key messages
in the Communication are that:
— the sustainability
of water resources is at stake in many river basins in Europe;
— appropriate water pricing[33]
has a key role to play in the development of policy in this area;
— to play an effective role, pricing needs
to be based on an assessment of the costs and benefits of water
use, and to take account of both the financial costs of providing
services and the environmental and resource costs[34];
— in particular, a price linked directly
to the water quantities used or pollution produced can ensure
a clear incentive for consumers to improve water use efficiency
and reduce pollution;
— the integration of economic and environmental
objectives into Member States' water pricing policies is highly
diverse at present;
— more specifically, overall, the full
recovery of costs is only partly achieved, with environmental
and resource costs rarely being considered;
— the inadequacies of the present approach
are striking in the agricultural sector, especially in southern
European countries (where it is by far the largest water consumer,
and where scarcity problems are the greatest); and
— across industry as a whole, different
levels of cost recovery as between Member States and economic
sectors are likely to affect the competitiveness of those sectors
both in the internal market and international trade.
12.4 The Commission says that it "fully
recognises" the sensitivity for a wide variety of stakeholders
and Member States of the pricing issues which it is seeking to
address, and it stresses that it is not advocating a policy based
on pricing alone. It also recognises that water pricing needs
to be integrated with other measures to ensure that environmental,
economic and social objectives are met cost-effectively. Nevertheless,
it suggests that pricing should be given "due consideration",
and it says that its main aim in this Communication is to promote
political debate, leading to the identification of practical steps
and the development of guidelines for implementing the relevant
part of the Water Framework Directive.
12.5 The Communication proposes the following
set of guidelines for developing policies to enhance the sustainability
of water resources:
— Improving knowledge and the information
base
12.6 This would allow the development of
water pricing policies which accurately account for economic and
environmental variables. Metering is encouraged as a means of
providing information on different uses and to support volumetric
pricing, though the Commission acknowledges that providing precise
data for all users would be unrealistic in cost terms. It does
not, therefore, advocate universal metering.
— Setting the right water prices
12.7 The Commission states that pricing
policies should contain a variable element to provide incentives
to conserve water and reduce pollution, but that the weighting
of this element should be "carefully considered". It
adds that pricing policies should ensure that costs for each sector
are recovered; that both surface and groundwater should be considered;
and that the predicted gains from changes to pricing are best
assessed at the river basin scale. It also suggests that, although
social concerns over affordability are an important consideration,
they should not be the main concern where the level of water use
is unsustainable.
— Pricing policies and spatial scale
12.8 The Communication believes that financial
costs are best tackled at the scale of water service suppliers,
but that environmental and resource costs and benefits are best
assessed at river basin scale.
— Role for users and consumers
12.9 The Commission advocates broad consultation
with all users to develop pricing policies which are socially
and politically acceptable. It also suggests that regulation of
water prices may be necessary to ensure that prices adequately
reflect existing costs and do not hide inefficiency, with pilot
programmes having a key role in demonstrating the potential costs
and benefits of new pricing structures.
— Communication and information
12.10 The Commission says that, for its
incentives to work, pricing policy should be transparent and easily
understandable.
— Integration with river basin management
plans
12.11 The Commission considers that recent
developments in Community water policies, and especially the Water
Framework Directive, have stressed the importance of river basin
management plans in achieving environmental objectives, and that
water pricing is a key element in achieving the economic and environmental
objectives of such plans in a cost-effective way. However, it
needs to be complemented by other measures to tackle both water
quantity and quality issues, such as abstraction and discharge
licences and the reduction of leakages.
— Integration with other Community policies
12.12 The Communication states that the
Common Agricultural Policy and structural and cohesion funds should
be consistent with water pricing policies.
12.13 The Commission Working Paper accompanying
its Communication is essentially a factual analysis of the present
water pricing situation within the Community. So far as the UK
is concerned, it says that household water pricing mostly involves
a flat-rate system, and that in England and Wales there is a fixed
element for all households within a given utility, coupled with
an abstraction charge, which is currently either a mixture of
volumetric charging or a property value related charge. It adds
that users in vulnerable groups who are metered can opt to pay
only the average measured charge. It also says that waste water
and sewerage charges in England and Wales are based on property
size or value. It notes that the principle of full recovery of
financial costs is strictly applied in England and Wales for household,
industrial and agricultural use.
The Government's view
12.14 In his Explanatory Memorandum of 21
September 2000, the Parliamentary Under-Secretary of State at
the Department of the Environment, Transport and the Regions (Mr
Mullin) says that, although the Communication has no direct policy
implications for the UK, it does nevertheless set out the Commission's
position for further discussion. He points out that the Commission
has recognised that pricing policies in England and Wales already
reflect economic and environmental principles, but that there
is a potential conflict between the Commission's position and
the situation in Northern Ireland (where there are no domestic
water and sewerage charges, as these services are funded from
general taxation). He adds that the Communication makes no specific
mention of pricing policy in Scotland. He also makes the point
that it is unclear what status the Commission envisages for these
guidelines, or how they would be developed in the context of implementation
of the Water Framework Directive.
Conclusion
12.15 Although the Minister states that
this Communication has no direct policy implications for the UK,
it seems that the Government is unclear what status the Commission
envisages for its guidelines, or how these would be developed
in the context of the Water Framework Directive. Until these uncertainties
have been resolved, we find it difficult to form a view on the
significance of this document, and we are hence not in a position
to clear it. We would therefore wish the Minister to let us know
when the status of the document has been resolved.
12.16 In the meantime, we would also
like him to clarify the following matters:
— he quotes
the Commission as recognising that pricing policies in England
and Wales already reflect economic and environmental principles,
but, as we read it, this refers essentially to financial costs
as defined in paragraph 12.3 above, and stops short of the full
recovery of environmental and resource costs;
— if that is so, does the Minister see
the adoption of the guidelines as requiring any change in the
present approach in England and Wales, not least as regards metering?
— the implications of his comments on
Northern Ireland are that, if the guidelines come into force,
changes might well be required in the approach to charging adopted
there: can he say whether that is in fact the case?
— he says that the Commission makes
no specific reference to the position in Scotland, but his Explanatory
Memorandum too is silent on that point: can he say how charging
in Scotland would be affected by these guidelines?
30 (18036) 7351/97 and (18691) 12929/97, HC 155-xiv
(1997-1998), paragraph 1 (28 January 1998); (18915) 6260/98,
HC 155-xxv (1997-98), paragraph 6 (22 April 1998), HC 155-xxx
(1997-98), paragraph 10 (10 June 1998) and HC 34-i (1998-99),
paragraph 4 (25 November 1998); (20283) 9488/99, HC 34-xxvii (1998-99),
paragraph 6 (21 July 1999) and HC 23-xxvi (1999-2000), paragraph
11 (26 July 2000); (21356) 9350/00, HC 23-xxvi (1999-2000), paragraph
11 (26 July 2000). Back
31 Directive
00/60; not yet published. Back
32
Article 174(2). Back
33
This is defined as the overall amount paid by users for all the
services they receive, covering both distribution and waste water
treatment. Back
34
Financial costs are defined as comprising operation and maintenance
costs, and capital costs; environmental costs are taken to represent
the damage that water use imposes on the environment; and resources
costs are those due to the depletion of the resource beyond its
natural state of recovery. Back
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