This presentation was given at IEEP's capacity building for environmental tax reform conference on 5 October 2017 in Brussels, Belgium. Speaker: Anders Branth Pedersen (Aarhus University-DCE)

1. AARHUS UNIVERSITY (DENMARK)
Anders Branth Pedersen, Senior Researcher, Aarhus University, Denmark
5 October 2017, Committee of the Regions, Rue Belliard 99/101, Brussels
Final conference: Capacity building for environmental tax reform
Thematic session: Water stress and availability
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2. Water stress and availability: issues & challenges
• Prevalent problem across parts of Europe (in
particular Southern Europe). Expected to be further
accelerated due to climate change
• Activities in several economic sectors – in particular
agriculture - results in pressure: water pollution, over
abstraction etc.
• The WFD has led to the adoption of various measures
in Member States to implement its provisions
including on cost recovery and incentive water pricing
set out in Article 9.
• Recovery of the costs should include not only
operational costs but related “environmental and
resource costs”
• Solution: economic policy instruments

3. Water stress and availability: economic
policy instruments used
• Water pricing policies
• Water trading systems
• Taxes and charges on water abstraction
• Payment for ecosystem services (PES)
• Significant differences in design
• Often exemptions/tax relief for agriculture/industries
• Many countries have cost recovery of water services (prices cover
operating costs), but only a few integrate environmental costs of
water supply in the price
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4. Water stress and availability: case studies
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5. Water stress and availability: revenues
• Large variation in size of revenue
• Many different options for using revenue, e.g.
• General government budget (CYP)
• Water management related activities (POR)
• Biodiversity protection (BUL)
• Lowering of payroll taxes/green tax reform (DEN)
• Financing of Water Agencies (FRA)
• Investments and maintenance (Regional Water Authorities, NL)
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6. Water stress and availability:
effectiveness & efficiency
• Large variation in effectiveness
• If levels are low limited effect on incentives
• But also instruments with large env. effects,
e.g. in NL and DK
• Can stimulate innovation (NL) too
• And targeted use of revenue can provide
additional env. benefits (BUL)
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7. Water stress and availability: stakeholder &
civil society engagement

8. Water stress and availability: the way forward
• Concerns about potential adverse impacts of higher water prices on social equity are
often exaggerated (see e.g. Cyprus case study)
• Although water is a necessary good, its consumption is not entirely inelastic – pricing
can lead to more cost-effective savings compared to other policy instruments
• Revenue can be used strategically to support environmental protection (or to reduce
resistance from target groups)
• The Dutch cost recovery levy might be worth replicating in other Member States. The
levy had a strong impact on business behaviour and further stimulated innovation
• There do exist other taxes and charges with complex designs to learn from.
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9. Water stress and availability: who will need to increase
household water supply tariffs to reach full cost recovery
Source: Hogg, D. (et al.), 2016,
STUDY ON ASSESSING THE ENVIRONMENTAL FISCAL REFORM POTENTIAL FOR THE EU28

10. Case study presentations
• Case study 1: Pricing for irrigation and the cost of scarcity
• Christos Zoumides (the Cyprus Institute)
• Case study 2: The stake-pay-say principle in the Netherlands
• Herman Havekes (Dutch Water Authorities)