Financing Water Supply, Sanitation and Flood Protection

3. Projected investment needs across member states

Abstract

This chapter presents projected financing needs for water supply, sanitation and flood protection, across EU member states. As regards water supply and sanitation, it considers three scenarios: business as usual (where needs are essentially driven by urbanisation), compliance (where countries accelerate efforts to comply with EU Directives, if not already achieved), and efficiency (where countries converge towards arbitrary-set levels of performance for water supply and sanitation services).

Future investments for flood protection are projected but not monetised, as data paucity prevents the construction of a robust baseline.

This part of the report presents projections on financing needs for water supply, sanitation and flood protection for 28 member states by 2050. It ends with a section on issues related to the Water Framework Directive, which could not be quantified, but which affect the volume and nature of investment needs, now and in the future.

Comparisons between different sources for projections are uneasy because of differences in definitions, scope and assumptions. However, aggregate projections on investment needs for water supply and sanitation in the literature are reported, for the record:

• EIB (2016) reports that average annual investment in Europe in 2007-13 in municipal and industrial water and wastewater totalled about EUR 30 billion. The baseline reported in the previous sections amounts to EUR 101 billion; it includes total expenditures including operation and maintenance (not captured by EIB data).

• Projections by GWI indicate a small increase. Average yearly investment could reach EUR 33 billion by 2020. This would not compensate for the current investment backlog.

• EIB (2016) projects that actual investment needs to upgrade and renew Europe's water and wastewater systems are estimated at EUR 75 billion a year for the period 2014-2020. An additional EUR 15 billion would be required to comply with WFD requirements.

3.1. Water supply and sanitation

3.1.1. Business as usual scenario

As noted above, business-as-usual (BAU) projections reflect the additional cost of connecting new city dwellers: they are driven by urban dynamics. The projections do not take account of the rate of use of installed capacity. This may result in projections being quite accurate for Ireland (where installed capacity is fully used in Dublin) but being overestimates of financing needs in Germany or Lithuania (where installed capacity is sufficient to service more city dwellers).

The charts below reflect total additional investment needs for the baseline and business as usual scenario between now and 2030, per country and per capita respectively. It makes no assumption as to how this total amount can be spread annually over the period. Aggregate figure for the 28 member states amount to EUR 1,692 billion.

Figure 3.1. Additional expenditures by 2030 for water supply and sanitation Baseline + Business as usual scenario

Source: OECD analysis based on EUROSTAT (water-related public and household expenditure data), United Nations and Eurostat (total and urban population statistics and projections).

Nil additional expenditures reflect either no or negative urban population growth. Because fixed costs are an essential part of expenditures for water supply and sanitation, shrinking cities do not enjoy negative additional expenditure over the period, as they still need to operate and maintain existing assets. On the contrary, shrinking urban populations can generate difficulties (and costs) for maintaining WSS assets.

The BAU projections reflect contrasted situations across member states. They do not reflect any potential backlog (or overinvestment) in water supply and sanitation. Over the long term, such a backlog (or overinvestment) translates into the performance of the network. However, it is only partially reflected in leakage rates and non-revenue water. Ideally, projections should be based on a robust knowledge of the state of the infrastructure and history of past investment. Such knowledge however does not exist in most countries; WAREG (2017) notes that poor infrastructure knowledge is a barrier to investment, as it makes it difficult to measure critical issues and to properly plan investments. The Box 3.1 below reports developments that can contribute to more accurate knowledge in the future.

Box 3.1. Towards accurate knowledge of water supply and sanitation assets

France and Portugal have embarked in programmes that can contribute to better knowledge of the state of the assets for water services, thus supporting more accurate planning and decisions for operation, maintenance and renewal.

In France, a regulation issued in 2020 mandates local authorities to inventory public networks for water supply and sanitation. An index was set, to assess compliance with this requirement. When an authority scores below 40 (out of a maximum score of 120), the abstraction charge aide to the Water agency is multiplied by two. There is no such incentive for sanitation. In 2014, 2/3 of water services in France failed to comply with this regulation (figure provided by Canalisateurs de France, based on SISPEA data).

In Portugal, ERSAR has developed and is pilot-testing a set of indicators on infrastructure value, infrastructure knowledge and infrastructure management.

3.1.2. Alternative scenario – water supply

An alternative scenario for water supply reflects the cost of compliance with the revised DWD (under discussion at the time of drafting the report) and additional efforts to enhance the efficiency of services. The proxy used for the latter is convergence towards 10% leakage. The Box below discusses this assumption. The scenario adds the cost of connecting vulnerable groups as well. The proposal for the revision of the DWD requires that Member States provide access to water for the vulnerable and marginalised groups.

Urban patterns affect the cost of connecting communities and the efficiency of networks. Sprawl and less dense urbanisation increase the length of networks per user, the risk of leakage and operation and maintenance costs. Additional research could usefully characterise urban patterns for each member state and quantify how they affect future costs and expenditure needs.

Box 3.2. An arbitrary threshold for leakage reduction

The scenario used for projection of investment needs assumes that water utilities in Europe converge towards 10% leakage. This figure is arbitrary. It reflects the best performance of EU countries. It may not be relevant in any context. For instance, leakage is less of an issue where water is abundant and the opportunity cost of using water is low. The appropriate concept is the economic level of leakage, which can only be computed on a case-by-case basis. It is worth noting that leakage wastes more than water: it also wastes energy and other substances used to treat water. A dedicated EU Reference document discusses sustainable levels of leakage (see EC, 2015).

The OECD has tested another threshold for water use efficiency in water utilities in Europe. 20% can be considered a reasonable level of ambition. Several countries are already performing better. These countries would not face additional expenditure to increase efficiency. At aggregate level, relaxing the water efficiency threshold from 10 to 20% would lower investment needs related to water supply under the Compliance and Efficiency scenario by 15%. The Figure below compares the investment needed to achieve both threshold in each member state.

Figure 3.2. Investment needs for water use efficiency per member state

Comparison for 2 levels of efficiency: 10% vs 20%.

Source: Authors.

Aggregate figures for the 28 member states amount to EUR 35.8 billion. The projections suggest that both the level of additional efforts and the main driver vary across countries. In Romania, the cost of supplying vulnerable groups is disproportionally high. The same situation prevails – to a lesser extent - in Croatia, Poland, Slovakia and the Baltic states. In Italy, efficiency is projected to be a distinctively significant driver for additional expenditures. Belgium, France, Spain and – to a lesser extent – Bulgaria and Ireland face a similar challenge.

Per capita additional levels of effort show a different hierarchy. Romania stands in a distinct category. The atypical ranking of Luxemburg reflects the distinctively high share of non-resident labour, which uses water in Luxemburg during work hours but lives abroad.

Figure 3.3. Additional expenditures by 2030 for water supply - Compliance & efficiency scenario

Source: OECD analysis based on European Commission (estimates of costs of compliance with revised DWD, of connecting vulnerable groups, leakage rates) and Eurostat (population) and Eurostat (water-related public and household expenditures).

3.1.3. Alternative scenario – sanitation

An alternative scenario for sanitation captures the additional level of effort required to comply with the UWWTD. The projections are based on the distance to compliance with three key articles of the UWWTD: number of people who need to be connected to a sewer; number of people whose wastewater needs to be treated to a secondary treatment; number of people whose wastewater needs to be treated to more stringent treatment requirements.

Aggregate figure for the 28 member states amount to EUR 253 billion. Ranking of countries according to projected needs does not reflect the EU 15 – 13 categories: Italy, Portugal and Spain still need to invest significantly to comply with the UWWTD. Per capita, Romania and Bulgaria face a distinctively high level of additional expenditures.

The distance to compliance is affected by countries’ reliance on individual and other appropriate sanitation systems (IAS; for instance, sceptic tanks). The UWWTD acknowledges that IAS can be appropriate, to avoid unnecessary costs to connect to a centralised collection system. When reporting on distance to compliance, countries assume that IAS comply with UWWTD requirements. This is only the case where IAS are properly designed, their performance is monitored, and compliance is enforced; all conditions which can only be checked on a case-by-case basis.

The European Commission notes that several countries (including Greece, Hungary, Slovakia) report comparatively high levels of reliance on IAS. In selected countries (Czech Republic, Greece, Hungary, Latvia, Poland, Slovakia, Slovenia), IAS collect more than 5% of the total pollution load in agglomerations covered by the UWWTD (2014 data). Greece, Hungary and Latvia feature among the countries which report the smallest distance to compliance, assuming that IAS deliver services in line with UWWTD requirements. The cost of converging towards an arbitrary level of 5% of IAS was computed separately.

Box 3.3. Additional expenditures to converge towards 5% IAS per country

We explore separately integrating IAS levels in relation to distance to compliance. All countries are assumed to have a 5% level of IAS except for the following:

Table 3.1. Converging towards 5% IAS per country

Country	Level of IAS (% of total load)	Additional expenditure to converge towards 5% reliance on IAS (billion EUR; %)
Slovakia	16.5%	0.598	35%
Hungary	12.7%	1.282	43%
Greece	10.4%	1.086	34%
Poland	8.7%	9.335	71%
Czech Republic	6.8%	0.357	11%
Slovenia	6.2%	.009	1%
Latvia	5.2%	.001	0%
All other countries	5% or below	0

Note: % is the additional cost compared to the projected cost of Article 3 Compliance only

Source: Level of IAS: European Commission (2014). Additional costs: authors

The analysis of IAS levels examines the additional expenditure required to meet a target IAS of 5%. To achieve this, the estimated expenditures required to connect 95% of the population was to the initial distance to compliance calculation.

Country workshops have signalled situations where central systems are in place, but dwellers are reluctant to connect, because they do not want to pay - or cannot afford - the cost of connection. Lithuania is an example.

Figure 3.4. Additional expenditure by 2030 for sanitation – Compliance scenario

Source: OECD analysis based on European Commission (distance to compliance with UWWTD) and Eurostat (water-related public and household expenditures).

3.1.4. Summing up

The chart below brings together projections for water supply and for sanitation, combining the different scenarios: business as usual (driven by urbanisation), compliance with DWD and UWWTD, and efficiency (reduction of leakage in water supply). Aggregate figure for the 28 member states amount to EUR 289 billion.

Sanitation represents the lion's share of the total additional expenditures. This is particularly the case in Italy, Romania and Spain and - at lower levels – in Bulgaria, Croatia, Portugal and Slovakia. In these countries, urban population growth plays a minor part (sometimes nil) in projected future expenditures for water supply and sanitation.

Figure 3.5. Total cumulative additional expenditures by 2030 for water supply and sanitation

2020-2030, BAU + Compliance + efficiency (EUR billion)

Source: OECD analysis based on European Commission and Eurostat data.

The picture is different when the size of the population is factored in. The Figure below projects per capita levels of expenditures for the same scenarios. For reasons already explained, Luxemburg stands out. In Ireland and Romania, inhabitants are projected to spend more than EUR 1,000 in addition to current levels of expenditures, between now and 2030. In most other countries, the additional level of expenditure per capita ranges between EUR 500 and 1,000. At the low end of the spectrum, projections for Greece, Hungary and Latvia may reflect optimistic reliance on IAS and an underestimate of additional expenditures required to comply with UWWTD. The situation in Lithuania may reflect significant un-used capacities for sanitation that result from high level of investment in recent decades and users’ reluctance to connect.

Figure 3.6. Per capita cumulative additional expenditures by 2030

BAU + Compliance + efficiency (EUR)

Source: OECD analysis based on European Commission and Eurostat data.

A telling indicator of the additional level of effort required by each country is to compare the additional expenditures for water supply and sanitation with the current level of expenditures as captured by the baseline. The chart below does so, on an annual basis. It is assumed that each country spreads the additional expenditures evenly over the period.

According to the projections, all countries (but Germany) will need to increase annual expenditures for water supply and sanitation by more than 25%. At the higher end, Romania and Bulgaria need to double (or more) the current level of expenditures. Finland is projected to increase expenditures by 85% (this may reflect the fact that the current level of expenditures in Finland is probably underestimated; see previous comment). At the lower end of the spectrum, Cyprus, the Czech Republic, France, Germany, the Netherlands, Slovenia are projected to face comparatively minor needs for increase (by less than 1/3). This is likely to reflect different situations, including high levels of expenditures and good anticipation of future needs, significant catch up in the recent decades (Czech Republic), or underestimate of future needs, possibly driven by overreliance on IAS (Slovenia).

Figure 3.7. Per Annum additional expenditures by 2030

BAU + Compliance + Efficiency vs. baseline

The subsequent part of the report will discuss how feasible such additional levels of effort are, considering the financing capacities of countries and room for manoeuvre.

3.2. Flood protection

This section covers two segments of flood protection:

• Riverine floods. As mentioned above, projections reflect the respective impact of climate change and of socio-economic factors, namely economic and demographic growth. These impacts are projected on three variables: the value of assets at risk of flooding, the number of people affected by floods, and the value of GDP affected by floods.

• Coastal floods. Coastal floods are captured qualitatively; quantified projections may be developed at a later stage, when a consistent set of data is released by the World Resources Institute.

• Urban floods are partially captured in the qualitative discussion of emerging challenges (Section 4.2).

As mentioned above, the inability to monetise investment needs results from the paucity of data on current level of expenditures for flood protection. It reflects two assumptions:

• The appropriate level of security against flood risk will remain stable over the period. This is a strong assumption, as the public opinion may be less willing to accept risks of floods as countries develop and people become more aware of what is at stake;

• The cost of mitigating flood risks rises at the same rate as the share of the population, the value of assets or GDP exposed to floods. This again is a strong assumption. As experience accumulates, countries may favour technologies and flood management techniques and policies which can become significantly more costly (large dykes) or alternatively invest in technics and policies that are comparatively less expensive or can generate multiple benefits (nature-based solutions). Alternative ways of mitigating floods risks are discussed in the final part of the report.

3.2.1. Projecting additional expenditures for protection against riverine flood risk

Figure 3.8 below shows the total growth factors for the three selected river flood risk indicators. A growth factor is defined as the factor by which current flood risk expenditures should be multiplied in order to maintain current flood risk protection standards in the future (by 2030).

Figure 3.8. Total growth factors for river flood risk expenditure by 2030

Source: Acteon, for this project, based on WRI projections.

Countries can be clustered in different categories, reflecting different perspectives on future exposure to riverine floods.

Table 3.2. Country clusters based on projected exposure to riverine floods

Countries affected by the highest total growth factors	Countries affected by moderate growth factors	Countries benefitting from lower exposure of population	Countries benefitting from low or negative growth factors
Austria, Luxembourg, the Netherlands	Belgium, Czech Republic, Denmark, France, Germany, Hungary, Ireland, Poland, Romania, Slovakia, Sweden, the UK	Bulgaria, Croatia, Estonia, Latvia, Lithuania	Cyprus, Greece, Malta, Portugal, Spain

Countries affected by the highest total growth factors

The results show that the total growth factors for Austria, Luxembourg, and the Netherlands are the highest compared to other member states. These countries will face the highest expenditures for flood protection by 2030, if they aim to maintain current flood protection standards. The increase in total growth factors is driven by climate change, indicating that urban assets, GDP and population will be increasingly exposed to flooding in the future compared to the current situation.

Countries affected by moderate growth factors

A large group of countries faces moderate growth factors – positive but lower than the growth factors for Austria, Luxembourg and the Netherlands: Belgium, Czech Republic, Denmark, France, Germany, Hungary, Ireland, Poland, Romania, Slovakia, Sweden and the UK. These countries will face increasing flood protection expenditures by 2030, if they aim to maintain current flood protection standards.

Climate change will significantly increase future flood risk even though the effect is less pronounced for some countries. For example, for Czech Republic, Denmark, Germany, Hungary, Poland, Romania and Slovakia, the impact of climate change is relatively low and more or less equal to the contribution of socio-economic developments in the explanation of future increases in flood risk.

These countries are exposed to a certain level of river flood risk due to their geographical characteristics, but are less vulnerable than Austria, Luxembourg and the Netherlands. Some economic activity and part of the population are located in floodplains that will face more frequent and severe flooding due to increased precipitation in winter. In the future, flood risk is expected to increase due to economic developments, population growth and urbanization in flood plain areas.

Countries benefitting from lower exposure of population

In Bulgaria, Croatia, Estonia, Latvia and Lithuania, the total growth factors for annual expected urban damage and annual expected exposed GDP are positive whereas the growth factor for expected affected population is negative. The countries have a level of economic development that is below the average of EU member states, but strong economic growth is expected in the future. Finally, the population is expected to decrease in many of these countries.

These countries will face slightly increasing flood risk expenditures by 2030, if they aim to maintain current flood protection standards. In contrast with other member states, socio-economic developments – not changes in the climate - have a relatively large contribution to a future increase in flood risk in these countries. This group of countries is exposed to river flood risk due to their geographical characteristics.

Countries benefitting from low or negative growth factors

Finally, in Cyprus, Greece, Malta, Portugal and Spain, several total growth factors are low or negative. Climate change is the dominant growth factor explaining the negative total growth factors for some indicators. In general, these countries have limited exposure to river flood risk due to their arid or semi-arid climate (even though some catchments are exposed to flooding during winter). Future flood risk is expected to decrease due to climate change and this is reflected in the negative growth factors for several indicators. These countries are projected to face no increase in flood risk expenditures by 2030.

3.2.2. Projecting additional expenditures for protection against coastal flood risk

The results of the qualitative assessment of projected coastal flood risk investment needs based on three vulnerability indicators (change of build-up in flood prone areas, number of people exposed to flooding, damage costs) are presented in Countries with high actual coastal flood risk will need to invest significantly in the future in order to maintain current flood protection standards compared to other member states. Several countries are actually exposed to high coastal flood risk: France, the Netherlands and the UK. These countries share the North Sea or the Atlantic Ocean Scenario, both maritime basins for which projections show that sea level rise is expected to be significant.

Climate change appears to be the dominant factor for an increase in future projected investment needs. Countries that have a high damage potential due to urban development, population and economic activity in the coastal flood plain have a higher vulnerability to flood risk. Due to socio-economic developments the flood risk in coastal flood plains could increase. However, the effect of socio-economic developments in explaining future coastal flood risk appears to be subordinate to the effect of climate change.

Table 3.3 below. A more comprehensive set of country-specific data that affect exposure to coastal floods is appended. Based on the evaluation of the three vulnerability indicators, countries were classified in one of four categories of projected coastal flood risk investment needs, in which 1 indicates very low growth of projected investment needs and 4 very high growth of projected investment needs by 2030.

Countries with high actual coastal flood risk will need to invest significantly in the future in order to maintain current flood protection standards compared to other member states. Several countries are actually exposed to high coastal flood risk: France, the Netherlands and the UK. These countries share the North Sea or the Atlantic Ocean Scenario, both maritime basins for which projections show that sea level rise is expected to be significant.

Climate change appears to be the dominant factor for an increase in future projected investment needs. Countries that have a high damage potential due to urban development, population and economic activity in the coastal flood plain have a higher vulnerability to flood risk. Due to socio-economic developments the flood risk in coastal flood plains could increase. However, the effect of socio-economic developments in explaining future coastal flood risk appears to be subordinate to the effect of climate change.

Table 3.3. Projected coastal flood risk investment needs

	Change in built-up in areas vulnerable to coastal floods	People in the 100-year flood plain	People flooded	Damage costs	Expenditures to protect against coastal flood risk
	%-increase	Million	Thousands/year	Billion Euro/year	Category 1-4
	2050	2030	2050	2050
	Brown et al. (2011)	Neumann et al, (2015)	Hinkel et al, (2010)	Hinkel et al, (2010)
Austria	-	-	-	-	-
Belgium	10,34	-	1,9	1,1	3
Bulgaria	0	-	0,2	<0,1	1
Croatia	-	-	-	-	-
Cyprus	60	-	0,1	<0,1	1
Czech Republic		-	-	-	-
Denmark	18,69	-	0,5	0,5	2
Estonia	0	-	0,1	<0,1	1
Finland	2,17	-	0,3	0,2	1
France	7,13	-	3,5	2,5	4
Germany	1,36	3,2	2	3	3
Greece	3,57	-	0,5	<0,1	1
Hungary	-	-	-	-	-
Ireland	21,43	-	0,6	<0,1	1
Italy	0	2,4	1,1	0,3	3
Latvia	0	-	0,8	<0,1	1
Lithuania	0	-	0,8	<0,1	1
Luxembourg	-	-	-	-	-
Malta	-	-	0,1	<0,1	1
Poland	25	-	4,5	<0,1	3
Portugal	4,55	-	0,7	0,2	2
Romania	0	-	1,1	<0,1	2
Slovakia	-	-	-	-
Slovenia	0	-	0,1	<0,1	1
Spain	3,64	1,6	1,6	0,4	2
Sweden	10,17		0,2		1
The Netherlands	8,54	10,2	5	2,3	4
United Kingdom	13,31	4,4	4,8	1,2	4

3.3. Investment needs under the Water Framework Directive

The DWD, UWWTD and Flood Directive are instrumental to compliance with the WFD. However, compliance with the three Directives covered in this report does not guarantee compliance with the WFD: more will need to be done to achieve good status. This section discusses qualitatively what will remain to be done, after countries comply with the three “technical” Directives.

It is worth noting that there may be some tensions across Directives, for instance when measures taken to mitigate flood risks affect environmental flows or the hydromorphology of rivers and lakes. Such situations were anticipated in the Water Framework Directive, which allows for exemption by application of the Article 4.7, according to which deterioration of status or non-achievement of good status or potential can be justified under certain conditions.

3.3.1. EU Member States often fail to meet the water quality objectives of the WFD

Many EU countries fail to achieve ‘good’ chemical and ecological status of water bodies, as required under the EU Water Framework Directive (WFD)1. This is often despite compliance with technical EU water directives on drinking water, urban wastewater treatment and floods.

Based on the latest State of Water report by the European Environment Agency (2018):

• Only 40 % of the surface water bodies in the EU are in ‘good’ or ‘high’ ecological status. Lakes and coastal water bodies have a slightly better status (ca. 50%) than rivers and transitional water bodies (ca. 30-35%). The central European river basin districts, as well as some of the southern river basin districts, show the highest proportion of water bodies not achieving good ecological status or potential. The overall ecological status has not improved since the first reporting of River Basin Management Plans in 2009.

• Similarly, only 38 % of the surface water bodies in the EU are in ‘good’ chemical status. Almost half (46%) of the surface water bodies are not achieving good chemical status and 16% of the water bodies have unknown chemical status. High levels of mercury is a major cause of chemical status failure.

• Good chemical status of groundwater was achieved for 74 % of groundwater bodies.

Considering the large proportion of surface waters failing to meet 'good' ecological and chemical status, it is unlikely that the EU WFD objective of achieving good status of waters will be met by 2027 (when all exemptions have been used). Full implementation of the management measures under the WFD, in combination with full implementation of other relevant directives (e.g. Urban Wastewater Treatment, Nitrates Directive) is needed in order to restore the ecological and chemical status or potential of water bodies.

3.3.2. What prevents EU member states from achieving good water quality status

Failure to achieve good ecological and chemical status under the WFD primarily derives from three main pressures:

• Diffuse (non-point) source pollution from rural and urban sources (compliance with the Urban Wastewater Treatment Directive largely mitigates point source pollution). Diffuse source pollution affects the water quality of 62 % of surface water bodies and 41 % of groundwater bodies in the EU (EEA, 2018). Agricultural production is a major source of diffuse pollution. In Europe, diffuse source pollution is mostly due to excessive emissions of nutrients (nitrogen and phosphorus) and chemicals, such as pesticides. Atmospheric deposition is the leading source of mercury pollution2 in most of the surface water bodies failing to achieve good chemical status. The EEA estimates that measures taken under the Nitrates Directive are not enough to tackle significant pressures from diffuse sources to reach good ecological status (EEA, 2018).

• Alteration to the natural hydromorphology3 of rivers and lakes. Hydromorphological pressures are the second most commonly occurring pressures on surface water bodies (after diffuse source pollution) affecting 40% of all surface water bodies in the EU. In addition, 17 % of European water bodies have been designated as heavily modified (13%) or artificial water bodies (4 %) (EEA, forthcoming). Changes in the natural geomorphology and water flow of water bodies (e.g. channelised rivers disconnected from their floodplains, dams, canals, flood defences, reclaimed land) can have severe impacts on water quality, aquatic health, and the ability of ecosystems to process and retain pollutants (EEA, 2018; Nilsson and Malm Renöfält, 2008; Wagenschein and Rode, 2008). For example, a study on the Weisse Elster River, Germany, revealed that the nitrogen retention rate is almost 2.4 times higher in a natural section of the river compared with a heavily modified and channelised section (Wagenschein and Rode, 2008).

• Historical pollution, particularly contaminated river and lake bed sediment. Historical pollution from industry and mining can often be a long-lasting source of pollution. Such pollution may have occurred when the science on the human and ecological health impacts was not clear, and when pollution regulations, monitoring and compliance were not as stringent as today. Historical pollution can be costly to remediate, as demonstrated in the case study of Flix, Ebro Basin, Spain (Box 3.2). One complication of historical pollution is the polluter is often no longer around to pay for the remediation of pollution, and thus the cost of clean-up is frequently left to governments and the tax payer.

These pressures affect the good functioning of water-related ecosystems, contribute to freshwater biodiversity loss, and threaten the long-term delivery of ecosystem services and benefits to society and the economy (e.g. the value of clean water and recreation).

Box 3.4. A case of costly historical pollution: Flix Reservoir, Ebro Basin, Spain

Accumulated historical contamination from industrial sources remains a persistent pollution source in the Ebro Basin, Spain - the second largest river flowing into the NW Mediterranean. This is nowhere more evident than in Flix Reservoir, which has been affected by toxic wastewater discharge from a chlor-alkali electrochemical plant since its establishment in 1897. As a result, elevated levels of organic contaminants, heavy metals and radioisotopes have accumulated in the water and sediment of the reservoir.

There was concern about the risk of flood, dam failure and the suspension of the contaminated sediment for transmission downstream - a potential threat to the water supplies of municipalities downstream, as well as the nearby protected Sebes natural reserve and the Ebro coastal delta system. Two possible options were considered:

1. Confine the contaminated sediment in the Flix reservoir (cheap)

2. Remove the sediment and treat the water from the reservoir, by changing the river flow and building a retaining/confinement wall.

A decision to extract, treat and eliminate the contaminated sludge and subsequently restore the Ebro River and its ecosystem was made in 2009 (option 2). Up to one million cubic meters of contaminated reservoir sediment will be removed by the project to reverse more than a century of pollution. The total cost is estimated at EUR 200 million - the largest investment ever for a decontamination project in Spain. It is estimated that the clean-up will take two years and eight months to complete.

The Flix Reservoir decontamination project draws 30% of its funds from the Spanish government and 70% from the European Union Cohesion Fund. There is also a Land Restitution Plan associated with the project, aimed at providing compensation for the people affected by the work. This plan entails EUR 57 million investment, split between the national government (36 million) and the Catalan government (21 million).

3.3.3. Options for investment to improve water quality

Mitigation and/or restoration measures are required to meet the WFD goal of achieving, enhancing or maintaining good status of transitional, coastal and freshwater bodies. Options for investment to improve water quality, including the targeted management of diffuse pollution, restoration of the natural hydromorphology and remediation of historical pollution, are outlined in Table 3.4.

Table 3.4. Examples of investment options to improve water quality

Investment type / Type of pollution targeted	Green (natural) infrastructure	Grey (built) infrastructure	Management practices	Policy and planning
Diffuse pollution	Wetlands Riparian planting Green roofs Permeable pavements Green swales Returning river systems to their natural state (river restoration) Afforestation of upstream catchments Land retirement (protected areas)	Phase out combined sewer overflows Build dual sewage and stormwater networks Construct stormwater storage systems (tunnels, reservoirs)	Cover crops Nutrient budgeting Fertiliser and pesticide efficiency Optimised manure management Responsible chemical storage Managing hotspots and at-risk vulnerable areas	Master plans or conservation plans for restoring the water quality and ecosystem health Ecological/ minimum flow requirements Removal of harmful subsidies Economic instruments (e.g. PES, pollution charges, water quality trading) Regulations (e.g. drinking water and wastewater standards, restrictions or bans on harmful chemicals, land use restrictions) Advisory services and knowledge-building
Alteration to natural hydromorphology	River restoration Afforestation of upstream catchments Land retirement (protected areas)	Removal of obstacles and structures Installation of fish passes or ladders Upgrade wastewater treatment plants	Riparian planting to stabilise river banks Managing hotspots and at-risk vulnerable areas	Master plans or conservation plans for restoring the water quality and ecosystem health Ecological/ minimum flow requirements
Historical pollution	Bioremediation (i.e. microbial biodegradation) Natural attenuation	Dredging to remove and treat contaminated sediments Water purification methods (e.g filtration, air stripping or thermal treatment)	Containment Managing hotspots and at-risk vulnerable areas	Master plans or conservation plans for restoring the water quality and ecosystem health Ecological/ minimum flow requirements Water safety plans Environmental Impact Assessments Site remediation plans Chemical spill response plans Liability or insurance requirements Pollution fines and penalties

The Water Framework Directive (Article 5) requires Member States to carry out an economic analysis to identify the most cost-effective responses to pressures on the status of water bodies. The second generation of river basin management plans indicates that progress in this direction has been slow.

There is a case for the utilisation of cost-effective prevention and abatement practices that could yield more beneficial results in terms of water quality improvements and control-cost savings (Shortle et al., 2012; Shortle and Horan, 2013). This is for instance the case with measures related to controlling diffuse pollution from agriculture, which have triggered mixed results (see OECD, 2017 for a more detailed discussion).

Innovative approaches, such as water quality trading and other economic instruments, offer the possibility of improving the effectiveness and efficiency of water quality programmes (see OECD, 2017 for more information and case studies). Figure 3.9 demonstrates the variation in cost of various management and infrastructure options to reduce nitrogen loading in Chesapeake Bay, United States.

Figure 3.9. Cost comparison of options to reduce a nitrogen loading, Chesapeake Bay Watershed, United States

Source: Jones, C. (2010), How Nutrient Trading Could Help Restore the Chesapeake Bay, WRI Working Paper. World Resources Institute, Washington, DC.

The fundamental challenge for policy makers is to understand the – economic, social and environmental - costs of non-compliance, and to compare the costs of measures with the value they create for the communities. In the context of the Blue 2 study, Russi and Farmer (2018) test a methodology to assess the costs and benefits of the implementation of the EU water acquis in selected river basins.

A set of well-established principles can guide the design and implementation of policy responses to water pollution (OECD, 2017).

• The Principle of Pollution Prevention derives from the fact that prevention of pollution is often more cost effective than treatment/remediation options.

• Similarly, the Principle of Treatment at Source reflects the observation that the later the stage of control, the less effective and more costly the treatment is likely to be due to pollution dispersion.

• The Polluter Pays Principle makes pollution costly and incentivises reductions.

• The Beneficiary Pays Principle allows sharing of the financial burden of water quality management when necessary.

• Equity should be considered with regards to fair allocation of pollution rights, costs and benefits of abatement, and the needs of future generations.

• Policy coherence is required to ensure initiatives taken by different policy sectors (e.g. agriculture, urban planning, and climate) do not have negative impacts on water quality and to capitalise on co-benefits from water quality interventions. Investments in green (nature-based) infrastructure solutions have advantages here; they can support the goals of multiple policy areas, increase the resilience of ecosystems, and are generally less capital intensive and have lower operation, maintenance and replacement costs than grey (built) infrastructure alternatives (see Sections 12.1, 12.4).

Box 3.5 presents a New Zealand case study illustrating how the strong endorsement of a voluntary agreement with the dairy industry helped to spur significant investment in the reduction of diffuse source water pollution and laid the groundwork for forthcoming national regulation on water quality (for the dairy industry and other sectors, e.g. beef cattle, sheep, deer, pigs). While the combination of tools is sophisticated, it illustrates considerations that contribute to achieving good ecological and chemical status of water bodies at the least costs for communities.

Box 3.5. A voluntary agreement to stimulate investment in the protection of water bodies, in New Zealand

In recognition of the need for limits on water quality and resource allocation, the New Zealand government issued the National Policy Statement for Freshwater Management (NPS-FM) in 2011 (subsequently amended in 2014). In 2014, the government announced its intention to require the exclusion of dairy cattle from waterways by 1 July 2017 (MfE, 2016). It was at this time, that the “Sustainable Dairying: Water Accord” was established as a voluntary agreement between government and the dairy industry (DairyNZ and DCanz, 2013). The accord sets clear environmental performance targets for fencing off dairy cattle from water bodies; the establishment of riparian areas; the management of nutrients, effluent and water use; and environmental measures for farm conversions to dairy.

Since the accord’s inception, dairy cattle have been excluded from 97.2% of New Zealand’s waterways that are subject to the accord1. Greater than 99% of 44 386 regular livestock river crossing points on dairy farms have bridges or culverts to protect local water quality, while 83% of dairy farms have nutrient budgets (DairyNZ and DCanz, 2017). Farmers have spent more than over NZD 1 billion (EUR 580 million) on environmental initiatives over the last five years, with the majority of investments (70%) on effluent system upgrades and fencing (DairyNZ and DCanz, 2016). In addition, NZD 10 million (EUR 5.8 million) has been spent on environmental stewardship and farmer support programmes covering research, development, and farmer extension (DairyNZ and DCanz, 2017).

Through the Accord, tangible results have been achieved ahead of the adoption of relevant government regulation, which require public consultation and are open to potentially lengthy court cases2. The Accord has also helped create acceptance before becoming regulation and has contributed to the design of the regulation for sectors beyond dairy (i.e. beef cattle, sheep, deer, pigs).

Notes:

1. The total number of farms covered by the Accord is approximately 11 400, representing 95% of all New Zealand dairy farms (DairyNZ and DCanz, 2017).

2. In 2016, the Government proposed a set of national regulations requiring exclusion of dairy cattle, beef cattle, deer and pigs from water bodies by dates ranging from 2017 (dairy and pigs) to 2030 (beef and deer on lowland/rolling hills (MfE, 2016).

Source: DairyNZ and DCanz, 2013; 2016; 2017, MfE, 2016.

References

Brown S., Nicholls R.J., Vafeidis A., Hinkel J., and Watkiss P. (2011), The Impacts and Economic Costs of Sea-Level Rise in Europe and the Costs and Benefits of Adaptation. Summary of Results from the EC RTD ClimateCost Project, in Watkiss P. (Editor), The Climate Cost Project. Final Report. Volume 1: Europe, Stockholm Environment Institute, Sweden, ISBN 978-91-86125-35-6.

DairyNZ and DCanz (2017), Sustainable dairying – Water Accord: Three years on… Progress report for the 2015/16 season.

DairyNZ and DCanz (2016), Sustainable Dairying: Water Accord: Two Years on… Progress report for the 2014/15 season.

DairyNZ and DCanz (2013), Sustainable Dairying: Water Accord, DairyNZ, Hamilton.

Eureau (2018), Briefing Note. Update on the 3TS, Brussels, Belgium.

European Commission (2017), Study supporting the revision of the EU drinking water directive. Final impact assessment report. Part II, impact assessment, Brussels

European Commission (2015), Good Practices on Leakage Management. Main Report, Brussels

European Court of Auditors (2018), Special report no 25/2018: Floods Directive: progress in assessing risks, while planning and implementation need to improve, Luxemburg.

European Environment Agency (2018), State of Water report 2018, European Environment Agency, Copenhagen.

European Investment Bank (2016), Restoring European Competitiveness, Luxemburg

Freyberg, T. (2013), Contaminated sludge clean-up begins on Spain’s Ebro River to reverse toxic legacy https://www.waterworld.com/articles/2013/04/contaminated-sludge-cleanup-begins-on-spains-ebro-river-to-reverse-toxic-legacy.html [accessed 15/05/20184].

Grantham, T.E., Figueroa, R. and N. Prat (2012), Water management in Mediterranean river basins: A comparison of management frameworks, physical impacts, and ecological responses. Hydrobiologia, pp. 1-32.

Hinkel J., Nicholls R.J., Vafeidis A.T., Tol R.S.J., Avagianou T. (2010), Assessing risk of and adaptation to sea-level rise in the European Union: An application of DIVA. Mitig Adapt Strateg Glob Change 15:03-719

Jones, C. (2010), How Nutrient Trading Could Help Restore the Chesapeake Bay, WRI Working Paper. World Resources Institute, Washington, DC.

MfE (2016), Next Steps for Fresh Water: Consultation document, Ministry for the Environment, Wellington.

OECD (2017), Diffuse Pollution, Degraded Waters: Emerging Policy Solutions, OECD Studies on Water, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264269064-en

Neumann B., Vafeidis A., Zimmermann J., Nicholls R.J. (2015), Future Coastal Population Growth and Exposure to Sea-Level Rise and Coastal Flooding - A Global Assessment, DOI: 10.1371/journal.pone.0118571

Nilsson, C., and B. Malm Renöfält (2008), Linking flow regime and water quality in rivers: a challenge to adaptive catchment management, Ecology and Society Vol. 13, No. 2.

Palanquesa, A. et al. (2014), Massive accumulation of highly polluted sedimentary deposits by river damming, Science of The Total Environment, Vol. 497-498, p. 369-381.

Russi D., A. Farmer (2018), Testing a methodology to assess the costs and benefits of the implementation of the EU water acquis in selected river basins, Deliverable to Task A3 of the BLUE 2 project “Study on EU integrated policy assessment for the freshwater and marine environment, on the economic benefits of EU water policy and on the costs of its non- implementation”. Report to DG ENV.

Shortle, J.S. et al. (2012), Reforming agricultural nonpoint pollution policy in an increasingly budget-constrained environment, Environmental Science and Technology, Vol. 46, pp 1316-1325.

Shortle, J.S. and R.D. Horan (2013), Policy Instruments for Water Quality Protection, Annual Review of Resource Economics, Vol. 5, pp. 111-138.

Wagenschein, D. and M. Rode (2008), Modelling the impact of river morphology on nitrogen retention-A case study of the Weisse Elster River (Germany), Ecological Modelling, Vol. 211, pp. 224-232.

Notes

← 1.  The goal of the Water Framework Directive (WFD) is that good status should be achieved, enhanced or maintained in transitional, coastal and fresh waters. This goal is primarily concerned with the quality of surface and groundwater bodies: i) good ecological status in surface water bodies and ii) good chemical status in surface and groundwater bodies. The control of water quantity is also required to serve the objective of ensuring good quality (i.e. ensuring sufficient environmental flows for pollution dilution).

← 2.  Common atmospheric (diffuse) pollution sources of mercury include fossil fuel combustion (in particular coal-fired power plants), historic and current gold and silver mining operations, and natural sources (such as volcanoes, forest fires, and particulate and gaseous organic matter emissions from land and marine plants).

← 3.  Hydromorphology is a term used in river basin management to describe the interactions between hydrologic processes (water flow), geomorphic processes (landforms and earth materials) and the attributes of rivers, lakes, estuaries and coastal waters.