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Chapter ten
WATER PRICING POLICIES
Introduction
10.1 The Directive recognises that water prices can be a powerful incentive for water users to change their behaviour in order to protect the environment. It requires Member States to have policies on water pricing that are linked to their policies on protecting the water environment. Indeed, Member States water pricing policies must be included in the measures to achieve the objectives that are detailed in the RBMP. Table 10.1 outlines the Directive's requirements in detail. It is worth noting that "water user" has a very wide meaning in the Directive, in essence it is any human impact on the water environment. This means that all the control regimes described in previous chapters have to be underpinned by charging schemes. It also covers water charges levied by the water authorities.
Table 10.1: Directive's requirements for water pricing
Article 9 requires Member States to "take account of the principle of recovery of the costs of water services, including environmental and resource costs, having regard to the economic analysis conducted according to Annex III, and in accordance in particular with the polluter pays principle". Further, by 2010, Member States shall ensure that: - water pricing policies provide adequate incentives for users to use water resources efficiently and thereby contribute to the environmental objectives; and
- an adequate contribution of the different water uses, disaggregated into at least industry, households and agriculture, to the recovery of the costs of water services, based on the economic analysis and taking account of the polluter pays principle.
In doing so, Member States may have regard to the social, environmental and economic effects of the recovery as well as the geographic and climatic conditions of the region or regions affected. Member States will not have to change established practice for any given water use sector in order to comply with these requirements if this does not compromise achieving the environmental objectives. "Water services" means all services which provide for households, public institutions or any economic activity: (a) abstraction, impoundment, storage, treatment and distribution of surface water or groundwater or (b) waste water collection and treatment facilities which subsequently discharge into surface water. "Water use" means water services together with any other activity identified as having a significant impact on the status of water. |
Pricing
10.2 A key part of the Directive's requirements is the need to ensure recovery of the costs of water services and that there are "adequate incentives for users to use water resources efficiently". This requires us to consider the role for incentive charging, i.e. charges that increase in proportion to the environmental impact.
10.3 The recent Commission communication on pricing 3 was particularly critical of sectors, such as agriculture in Southern Europe, where water use is high in comparatively water scarce areas, yet is highly subsidised. It also put the case for greater use of incentive pricing in other sectors.
Full Cost recovery
10.4 Water prices must also "take account" of the principle of full cost recovery. Under this principle, all costs would be recovered from users. This principle will therefore underpin the charging regimes for the controls discussed already. It also applies to water services. In some Member States water services receive a substantial public subsidy. This is no longer the case in Scotland, so all financial costs of providing the service are ultimately paid for by consumers.
Implications for Scotland
10.5 A large proportion of water use in Scotland is already subject to cost recovery. The water authorities recover the full costs of water supply and treatment from their customers. Industrial users are typically charged in proportion to the volume of water used. Domestic water use is not normally metered and charges are linked to council tax bands. The promotion of social inclusion is of great importance to Scottish Ministers and our intention is to retain the current system of linking charging to council tax bands rather than move to widespread metering for domestic consumers.
10.6 The obligation in the WFD is 'that water pricing policies provide adequate incentives for users to use water resources efficiently'. The Directive allows us to retain any current charging system provided:
- that it does not compromise the environmental objectives of the Directive; and
- that we report any reasons for not implementing an incentive pricing system in our River Basin Management Plans.
10.7 We believe that current water charging arrangements in Scotland do provide adequate incentives, and do not compromise the environmental objectives of the Directive. This will need to be confirmed as part of the economic analysis required as part of the preparation for the RBMP.
Next Steps
10.8 We believe our current pricing system for water services is compliant with the requirements of the Water Framework Directive. However, we cannot merely assume that this is the case, we must demonstrate that is so. In particular, we must show that our pricing system does not hinder the achievement of environmental objectives. We also have to design a charging regime for the new environmental control regimes that takes proper account of the principles set out above. Research, as part of the Economic Analyses and River Basin District Management Plans should identify areas of environmental degradation and provide a greater awareness of the costs water users impose on others. Our regulatory approach can then be refined in the future to ensure achievement of environmental objectives in the most cost effective way.
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