Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

LEGISLATIVE FRAMEWORKWater use framework- European Parliament and Council Directive 2000/60/EC establishing a framework for Community action in the field ofwater policyWater and water ambient protection- Consequent to the Water Framework Directive- Directive about the bathing water quality (European Parliament and Council Directive 2006/7/EC)- Directive dealing with the protection of groundwater against pollution and deterioration (European Parliament and CouncilDirective 2006/118/EC)Other Directives- Council Directive 1976/464/EEC on pollution caused by certain dangerous substances discharged into the aquaticenvironment- Council Directive 1991/676/EEC of 12 December 1991 concerning the protection of waters against pollution caused bynitrates from agricultural sourcesSpecific water and waste water- Council Directive 1998/83/EC regulating the quality of water to be used for human consumption,- Council Directive 1991/271/EEC concerning urban waste-water treatmentThe main objective of the Water Framework Directive is to achieve good water status for all waters by2015. The Directive, therefore, pursues protection of all water bodies, including inland surface waters,transitional waters, coastal waters and groundwater.Even if activities to implement the Water Framework Directive are now under way in Member States andEuropean countries under a common implementation strategy 22 , the main principles, that are relevant forthe water project analysis, can be clearly outlined:- integrating the management of water resources on a river district scale. The ‘river basin district’ is theadministrative and territorial unit basis for the management of water from all points of view and isdefined as a set of terrestrial and marine areas, which include one or more neighbouring basins;- economics integrated into the management of the water services. The Water Framework Directiveclearly integrates economics into water management and water policy decision-making. To achieve itsenvironmental objectives and promote integrated river basin management, the Directive calls for theapplication of economic principles (e.g. water pricing). The Directive requires an economic analysis ofthe different uses of resources and water services 23 ;- the total cost recovery: the tariff policies for attaining the goal of economically and environmentallysustainable use of water resources, must take into account the ‘total water costs’:♦ financial costs: these are the costs of providing and administering water services, namely operatingcosts, and maintenance costs of capital for the renewal of equipment and new plants (capital andinterests and the possible return on equity);♦ environmental costs: these are related to damage to the environment, and to those who use it,caused by the environmental impact of the construction of the project infrastructures and by thesubsequent use of the water;♦ resource costs: these represent the costs of foregone opportunities that other users suffer due tothe depletion of the resource beyond its natural rate of recharge or recovery (e.g. costs related togroundwater over-abstraction). These users can be either those of today, or those of tomorrow,who will also suffer if water resources are depleted in the future. In principle, the goal of making22See: European Commission, Common Implementation Strategy for the Water Framework Directive, Guidance Document No 1 ‘Economicsand the Environment – The Implementation Challenge of the Water Framework Directive’ produced by Working Group 2.6 – WATECO, 2003.23The main features of the economic analysis can be summarised as follows (see also WATECO 2003): to carry out an economic analysis ofwater uses in each River Basin District; to assess the ‘total water costs’ and to assess current levels of cost-recovery; to assess trends in watersupply, water demand and investments; to identify areas designated for the protection of economically significant aquatic species and to designateheavily modified water bodies based on the assessment of changes to such water bodies and of the impact (including economic impact); tosupport the selection of a programme of measures for each river basin district on the basis of cost-effectiveness criteria and to define theimplications of the programmes for cost-recovery; to estimate the need for potential (time and objective) derogation from the Directive’sobjectives based on an assessment of the costs and benefits and of the costs of alternatives for providing the same objective.92