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ANNEX 1
CHARACTERISATION OF THE RIVER BASIN

This annex supplements the discussion in Chapter 2 on characterising river basin districts, describing the Directive's requirements in detail. There are three distinct elements to the process:

• Definition of water bodies, classification into water body types and reference conditions
• Review of environmental pressures and impacts
• Economic analysis

Water Bodies: Classification into types and Reference Conditions

All waters must be divided up into "water bodies" or management units for the purposes of the Directive. A "body of surface water" must be a discrete and significant element of surface water such as part of a burn, river or canal, or a loch or reservoir, or a transitional water (estuary) or a stretch of coastal water. A body of groundwater is a distinct volume of underground water within an aquifer (layers of underground rock through which water flows). The definition of water bodies is important because they will represent the management units for the Directive and will form the basis of any decisions on regulatory controls.

SEPA already divides rivers, estuaries and coastal waters into units on the basis of their chemical quality. It is likely that these units will turn out to be similar to the 'water bodies' for the purposes of the Directive. However, some alterations to the boundaries will be necessary to take account of the wider range of impacts that we need to consider under the Directive (physical and biological). In addition a better system for identifying groundwater bodies will have to be developed. The procedures and criteria for identifying water bodies will be consulted on in the course of the production of RBMPs.

The Directive distinguishes between different categories of surface water: river, loch, transitional water (estuary), coastal water and artificial waters (e.g. completely artificial reservoirs or canals). Subject to certain conditions described below, the water body may also be classified as heavily modified.

Waters within a category must be further subdivided into types, to enable specific reference conditions to be set for particular recognisable types of waters. The reference conditions are the ecology that would be expected if there were no human impacts on the water body and are the benchmark against which environmental objectives are set under the Directive (see Annex 2). The separation of water body categories into types takes account of the fact that for example, a lowland river or a shallow lowland loch would be expected to have a different kind of ecology from fast running rivers or deep lochs in the uplands.

The setting of reference conditions is very important because they form the standard against which the achievement of objectives is measured. However, it is a complicated process because it requires an understanding of the way that aquatic plants and animals interact with each other and their chemical and physical environment. Moreover, it requires an understanding of how these interactions are affected by human impacts and pressures.

It is important that the reference conditions for surface waters set by one Member State are comparable to those set by another. The European Commission will run an 'intercalibration exercise' from 2004 until 2006 in order to make sure that this is the case. This exercise will compare the way that different Member States have defined 'good status' - the default objective of the Directive by comparing their monitoring results from representative sites.

Review of Pressures and Impacts

This involves the collection of information on the nature and magnitude of the significant human pressures on the surface waters and groundwaters in the river basin district. For example, it must include information on the location and magnitude of significant sources of point and diffuse sources of pollution and significant abstraction and flow regulation schemes.

The purpose of this review is to identify which bodies of water in the district are likely to fail to meet the environmental objectives (see Annex 2) and to inform the development of the programme of measures to achieve the objectives. The review will identify the major water environment problems in the river basin district. It should give an indication of what the environmental objectives might be and identify those waters that may be considered for designation as artificial or heavily modified.

It is likely that the review at 2004 will need to be based mainly on existing information because there will be little time to collect new environmental data. However, the assessment will be refined through the environmental monitoring that has to be established in 2006.

Economic Analysis of Water Use

The economic analysis must identify the economic pressures on water resources. It has several purposes:

• To inform the water pricing policies required under the Directive
• To help make judgements about the most cost effective combination of measures to achieve the environmental objectives
• To collect economic information on which to base decisions about the designation of heavily modified waters and derogations

It should consider long term forecasts of supply and demand for water within the river basin district and estimate the costs associated with water services.

ANNEX 2
ENVIRONMENTAL OBJECTIVES

This annex describes the Directive's environmental objectives in detail. It explains the flexibility in the Directive to take account of other environmental socio-economic priorities as well as the needs of the water environment.

Surface Water Status

Surface water status has a chemical and an ecological component. Meeting the requirements for chemical status involves complying with the European wide standards that will be set for certain chemicals, including the substances on the priority list (see Chapter 5).

Classifying the ecological status of surface water bodies is more complex. There are five classes of ecological status of surface waters (from high to bad), all defined on the basis of the degree to which they differ from reference conditions, pristine conditions largely unaffected by human influences. The ecological status of individual water bodies is assessed by comparing the observed ecology - what species of plants and animals are present and in what quantities - with what you would expect to find in a similar water body at reference conditions or high status. Good ecological status (the default objective of the Directive) allows for slight deviation from high status.

Good status is satisfied when both chemical and ecological status are good. Waters that are already at "high" or "good" status must be protected and not allowed to deteriorate.

Groundwaters

The objectives for groundwater are defined in respect of groundwater chemistry and quantity. Groundwaters cannot be considered in isolation from the rest of the water cycle and are often intimately connected to surface waters. In addition wetlands often depend directly on groundwaters for a supply of water. Therefore, the objectives for groundwaters are also defined with respect to the associated effect of human interventions on associated surface waters and terrestrial ecosystems (wetlands). "Good groundwater status" is satisfied when both the chemical and quantity characteristics of the groundwater are "good".

Good groundwater status includes the additional requirement that the groundwater body must not be affected by saline intrusion (a symptom of over abstraction). Deterioration in the status of groundwaters must also be prevented. The inputs of pollutants into groundwaters must be prevented or limited and action must be taken to reverse any significant and sustained upward trends in pollutant concentrations in groundwater. A daughter Directive on groundwater is planned that will contain more specific requirements in relation to protecting groundwaters from pollution.

Artificial or heavily modified surface water bodies

In some cases it may not be possible to achieve "good surface water status" because there have been substantial physical alterations to the water body or because it is artificial. Directing investment to restore these waters to their natural state, even if it was possible, might not be in our socio-economic interest. For that reason, they can be designated as "heavily modified" or "artificial" if certain criteria are met. In that case the status objectives are defined in terms of "ecological potential" - the natural ecology most closely resembling the water body in question, taking the physical modifications into account. European wide research is currently being undertaken to investigate how this designation might work in practice.

Derogations

'Good status' and 'good ecological potential' are high targets - only slight deviation from the natural condition. It may not always be possible to achieve this target and so there are provisions for derogations from this default objective. Less stringent objectives can be set or a longer timetable to achieve good status (up to 27 years) can be established. These derogations may be allowed if achieving good status is not feasible or disproportionately expensive. Deterioration in status or failure to achieve objectives can be allowed in the context of sustainable human development. The criteria for applying these derogations are set out in the Directive.

Protected Areas

The Directive requires that each River Basin Management Plan includes a register of Protected Areas. These are areas which have been designated as requiring special protection for the protection of drinking water sources, economically significant aquatic species (such as shellfish) and habitat or species conservation. They must include a range of area designations under other Community legislation, such as Bathing Waters and Nitrate Vulnerable Zones. Habitat and species protection areas designated under the Habitats and Birds Directives must also be included. Environmental objectives for identified Protected Areas have to be set out in the RBMP.

The Directive does not specify what these objectives should be. Where the objective is determined by the relevant Community legislation (e.g. the Bathing Waters Directive) the standards from that legislation will apply. The actions that have to be taken under these Directives simply have to be reported on in the RBMP.

In other cases it will be up to Member States to set their own standards for these areas although these standards must guarantee at least the same level of protection as the existing Community legislation. For example, areas currently designated under the Shellfish Water Directive will become 'areas for the protection of economically significant aquatic species' under the WFD. Any standards set for these areas must guarantee at least the same level of protection as the Shellfish Water Directive, which will be repealed 13 years after the WFD comes into force.

ANNEX 3
PRIORITY LIST SUBSTANCES

The first list of priority substances to be controlled was finalised by the EU in June this year. Within two years of the list being agreed specific controls to progressively reduce emissions on each of the substances must be proposed by the Commission. These proposals for controls will be negotiated by the Member States and the European Parliament. If no agreement is reached by December 2006 each Member State must establish its own controls.

The Commission must review the adopted list of priority substances every four years and come forward with proposals for amending the list. These proposals will be considered by Member States and the European Parliament.

Although controls already exist for a majority of the chemicals on this initial priority list under COPA and other legislation, the list will offer a more integrated framework for action and will replace earlier Directives. This will include the 1976 Dangerous Substances Directive from which many of the current limits on permitted discharge levels are derived.

A total of 33 substances or groups of substances, are on the agreed Priority List. Eleven of these have been identified as providing particular grounds for concern and are classed as Priority Hazardous Substances (PHS). These substances will be subject to controls that will aim to achieve cessation of emissions to the aquatic environment, within twenty years of the controls being adopted. A further 14 have been confirmed as potential PHSs and their status will be reviewed four years after the list is agreed. The remaining 8 are defined as Priority Substances (PS) and will be subject to controls aimed at progressively reducing emissions of these substances to the environment.

You can obtain a copy of the agreed ⁴Priority List by contacting us at the address given elsewhere in this paper. You can also look it up on the web at: www.europa.eu.int/eur-lex

ANNEX 4
REGULATORY IMPACT ASSESSMENT

Title: Implementation of the Water Framework Directive in Scotland

Issue and Objectives

This annex is an initial Regulatory Impact Assessment (RIA) on the implementation of the EC Water Framework Directive in Scotland. As explained in the consultation paper that accompanies this RIA, the Executive is planning to introduce a Bill in the Scottish Parliament to transpose the Directive into Scots law. This is an initial RIA because it will be developed as we develop the transposing legislation. A complete RIA will be produced at the point at which we introduce the Bill in the Parliament.

In this document we highlight which business sectors are likely to incur costs as a result of implementation of the Directive in Scotland and flag up the financial implications for the public sector. We also describe the benefits of the Directive. We do not attempt to give definitive figures for these costs and benefits. However, we do quote the best cost benefit figures that are currently available to us, from a study ⁵ in 1998, undertaken by consultants on behalf of the Department of the Environment, Transport and the Regions (DETR), now DEFRA. We intend to commission research of our own to update this study and to produce more information about the impact of the Directive in Scotland. The results of this research will be reflected in the next version of the RIA.

Further regulatory impact assessments will be carried out in respect of any secondary legislation arising from the Bill. This is likely to contain much of the detail on how the Directive will be put into practice. The costs and benefits of implementing the Directive will be determined by the environmental objectives set out in River Basin Management Plans (RBMP). Economic analysis is an integral part of this process and the RBMPs will detail the costs and benefits of achieving these objectives.

We are required by European law to implement the Directive in an effective and timely manner.

Objective

The aim of the Directive is to improve the management of the water environment throughout the EU. The Directive establishes a common procedure for determining environmental objectives that will minimise the pressures on all surface waters and groundwaters within the Community. It also establishes a common approach to managing water on the basis of river basins.

Risk assessment and scientific justification

The consultation paper confirms that Scotland's water environment is, on the whole, in a good condition. We enjoy an abundance of water in Scotland and much of it is in a near pristine condition. These water resources are vital to many of our industries - e.g. whisky distilling, hydro electricity generation and aquaculture. Using water does give rise to environmental problems - from point source and diffuse pollution and from the physical impacts of over-abstraction or impoundment or other types of engineering works. Details are given in Chapters 2, and 5-9 of the accompanying consultation paper.

The Directive will help us to protect our water resources so that industry and others can continue to use and enjoy them now and in the future. It will do this through requiring the integrated management of river basins. This will allow for a more coherent management of water resources and the sensible and proportionate implementation of regimes controlling abstraction, impoundment, point source and diffuse pollution.

Options

The options are limited because of the requirement to implement the Directive properly. However, the Directive will allow us to take account of other social, environmental and economic needs as well as those of the water environment, as explained in Annex 2 of the consultation paper. This flexibility can be summarised as follows:

i) Applying "heavily modified water" status where there are physical modifications to water bodies by impoundments or other development (e.g. ports and harbours). This moderates the good status objective to "good ecological potential", i.e. as near to good status as possible given the activities for which the physical modification is required.

ii) Setting a less stringent environmental objective. This can happen if attaining "good status" is infeasible due to natural conditions, or disproportionate cost.

iii) Using timing derogations which enable the deadline for achieving good status to be deferred from 2015 until 2027 in some cases. This is in case the work that is necessary to meet the objectives needs to be phased, or a short timescale would be disproportionately expensive, e.g. due to cost of capital.

At present it is not possible to identify the scope for the use of these provisions in the Scottish context. However, the Economic Analysis of River Basin Districts, and the River Basin Management Plans for river basins will ensure that full account is taken of the costs and benefits during implementation.

We also have a range of options in how we put the Directive's requirements into practice - for example, the details of how an abstraction control regime would be administered. We have outlined some of our ideas on how to do this in a way that minimises the regulatory burdens on business in Chapter 4 of the consultation paper. In summary, we propose that the controls should be:

• Selective, being deployed only where they are needed to protect the environment
• Proportionate to the degree of environmental risk
• Streamlined and simplified as far as possible, involving for example, issuing combined licences to cover all aspects of water use on a single industrial site. This would reduce administrative burdens and means that the licence could be tailored to the user's particular needs

These considerations will be explored more fully in the RIA that will accompany the introduction of the specific regimes.

Costs and Benefits

Implementing the EC Water Framework Directive in Scotland will involve:

• The creation of new system to plan and manage the protection and improvement of the natural water environment in Scotland, based on natural river basin districts through the production of River Basin District Plans covering single catchments or groupings of catchments.
• The introduction of controls on physical impacts on the water environment (abstraction, impoundment and engineering) in addition to controls on pollution (both direct or point source and indirect or diffuse) in order to meet ecology based environmental objectives for all waters.

The specific costs and benefits arising from the Directive's implementation in Scotland will depend, to a large extent, on content of the River Basin Management Plans that are to be produced in 2009. These plans must incorporate a full economic analysis and they must choose the most cost effective combination of measures to achieve any given environmental objectives.

Benefits

The principal benefits that we consider will result from the implementation of the Water Framework Directive in Scotland are:

i. Protection and improvement of the quality and quantity of water in Scotland.

ii. Protection and enhancement of aquatic wildlife. The Directive aims to ensure that native aquatic life such as plants and fish can survive and reproduce. This in turn will support animals and birds higher up the food chain. Physical improvements in certain water habitats may also be required where this is necessary for the native biology to survive and reproduce. Such improvements in conservation of habitats and species will increase the amenity value of watercourses.

iii. Coherent management of river basins, enabling more cost effective strategies to be developed through the production of co-ordinated river basin management plans, recognising the links between all waters in a river basin, including groundwaters.

iv. Better targeting of water protection measures. The analyses of each river basin will provide better information about the full range of human pressures on the water environment. This will allow better planning and targeting of measures to deliver clear environmental benefits, particularly because it will allow a proper balance between controls on chemical (pollution) and physical (abstraction, impoundment and engineering) impacts.

v. The setting of detailed environmental objectives and the introduction of monitoring strategies that are appropriate to national and local circumstances rather than objectives and standards that are prescribed at the European level, as is the case with some other EC water legislation. Again, this means that resources can be targeted to problems of real concern.

vi. Transparency and accountability. The process of producing River Basin District Plans will be transparent. This will benefit water users and the general public as well as the Executive and other authorities.

Benefits - quantity and value

It will be clear from the description of the benefits given above that many are extremely difficult to value.

The consultant's study we referred to earlier attempted to make an assessment of the value of some of the tangible benefits the Directive will bring. Benefits were thought to accrue to in terms of recreation, angling, general amenity and the alleviation of low flows caused by over abstraction and the impoundment (storage) of water. On this basis, the overall findings of the benefits evaluation for Scotland were in the range 0.2 - 0.5 billion. It is important to note that the study was based on a draft version of the Directive, rather than the final version. We intend to commission research to update these findings during 2001.

The study identified a number of tangible benefits that could not be valued. This included those benefits deriving from better planning and management and greater consultation, which should allow better targeting of measures and therefore avoid unnecessary costs. Less tangible benefits, which clearly cannot be valued at present, include those that stem from having a sustainable water policy framework.

Business sectors affected

The wide-ranging nature of the Directive means that in principle any business sector could be affected depending entirely on local circumstances (i.e. the location and physical nature of the river basin and the type and number of impacts upon the water bodies within it). At this stage, we consider that there are several category costs that are likely to fall to business:

• The costs associated with river basin management planning - for example, providing information to the River Basin District Plan and responding to consultations on the plans
• That portion of the regulator's costs associated with environmental monitoring and assessment that can be passed onto water users
• The costs of complying with controls on pollution and physical impacts. There are likely to be both initial capital investment costs, such as the installation of new plant to meet tighter discharge consents and ongoing costs, e.g. monitoring and reporting results to the regulator

Compliance costs to business will derive from the following broad objectives:

Charities or voluntary organisations that wish to participate in the river basin planning system may incur costs associated with that participation.

Compliance costs for a "typical" business

The Directive is concerned with establishing broad objectives to be achieved over large catchments. In general, it does not prescribe particular regulatory requirements. This makes any assessment of the costs facing a particular type of business particularly difficult. In addition, there will not be consistency within sectors because the measures to be taken will reflect the pressures on the water environment in particular catchments. Our research will refine the above analysis and produce some case studies to illustrate what the costs for a typical business might be.

Compliance costs for a small or micro business

Our research will also consider the impacts on small and micro businesses.

Consultation with small and micro business: 'The Litmus test'

In general terms it is possible to anticipate that the following kinds of small businesses will be affected: those that discharge directly to watercourses, those that make abstractions from surface or groundwaters, and small agricultural holdings (which may be abstractors and/or sources of diffuse pollution). Costs will also fall to small businesses as a result of improvements that may need to be undertaken by the water authorities (see below) who may then pass costs onto their customers.

As far as small dischargers are concerned; the consenting regimes for point source pollution are unlikely to alter significantly from those currently in existence. The stringency of the requirements may, however change as a result of the need to improve on point source discharges in particular areas. We have outlined various ways in which the regulatory burden on businesses can be minimised in the consultation paper.

We would welcome the views of business on the potential impact of the implementation of the Directive in Scotland.

Total compliance costs

The WRC study estimated the total costs of complying with the Directive in Scotland as a range between 0.8 billion and 1 billion. The major cost was identified as the cost of making improvements to water status (0.69-0.97 billion). This was broken down into improvements to point source discharges (88 million), reductions in pollution from diffuse sources (555 million), improvements to habitats (6-288 million), alleviation of low flows (up to 27 million) and other costs (24 million).

These are 1998 figures, the year the study was carried out. They were calculated on the basis of full implementation by 2010 (NB - full implementation is now due by 2015) and represented the total of one-off implementation costs and recurring expenditure over the period 1998 to 2040 ⁶. Our new research will update these estimates.

Identify any other costs

In the consultant's study, the administrative, planning and monitoring costs were assumed to fall principally on central government and government agencies, with small administration costs falling on local authorities and the water industry. The estimated cost of administrative arrangements was 2m, for the planning process 11m, and for additional monitoring and assessment approximately 44m. Again, these figures are at 1998 prices in total over the period to 2040.

The costs of addressing physical impacts on watercourses from engineering works, abstractions and impoundments and diffuse pollution from urban runoff, may fall on SEPA, SNH, water authorities, Local Authorities and landowners, as well as on the businesses identified above. However, it is not currently possible to estimate the extent and distribution of this work.

⁶The figures quoted are the net present value of costs incurred between 1998 and 2040. The year 2040 was chosen because it was 30 years after the deadline in the original proposal for achieving the Directive's objectives. Thirty years is a widely used asset life for pollution control equipment.

The water authorities may incur costs relating to the requirement to introduce controls over abstraction and impoundment. In addition, they may have to improve the standards of sewage treatment in some areas. These costs could be passed onto other water users, including domestic consumers. It is not possible to estimate the size of any increase in domestic bills which might result from the Directive, as action required to implement the Directive will be considered as part of the normal process of the strategic reviews undertaken by the Water Industry Commissioner for Scotland. The costs to water authorities of any necessary action will, in the normal way, be offset by previous and future efficiency gains and other factors that are taken into account in the price-setting process.

Customers of new entrants to the water industry as a result of opening the market to competition will have their tariffs determined by the market.

Article 9 requires member states to 'take account of the principle of recovery of the costs of water services' and to 'ensure by 2010 that water pricing policies provide adequate incentives for users to use water efficiently'. We anticipate that this should have little effect on water charging policy in Scotland because water services in Scotland are already subject to cost recovery - the charges levied by the water authorities for the public supply. We do not believe that changes will need to be made to these to comply with the Directive (see Chapter 10 of the consultation paper). Charging schemes are already in place to recover the costs of the point source licensing regime and we will need to introduce charges for the new regimes described above. We will be able to establish the precise impact of Article 9 on charging regimes through the economic analysis that must form part of the River Basin Management Plans. Public authorities, principally, the water authorities, the Water Industry Commissioner for Scotland and SEPA and the Executive will incur costs because of the need to undertake this economic analysis.

Results of consultations in preparation of RIA

This initial RIA is issued in conjunction with the Executive's Consultation Paper on the implementation of the Directive in Scotland. We would welcome any comments from interested parties on the costs and benefits discussed here.

Summary

For Scotland, the total one-off and recurring costs may range from 0.8 to 1 billion, and the benefits capable of quantification have been valued at 0.2 to 0.5 billion. These are the total figures for a period up to 2040, discounted to 1998 prices. These figures should be regarded with caution because:

they are based on a draft rather than the final Directive; and

until the River Basin Management Plans are formalised, there are a number of uncertainties surrounding the exact nature of the measures that will be required to implement the Directive and achieve its objectives.

We are committed to further research in the area.

The Scottish Ministers and Parliament are responsible for the implementation of the Directive in Scotland. The Scottish Executive will consult extensively with the regulatory agencies, industry, agriculture, consumer groups and NGOs and the public on our proposals for implementing the Directive.

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