EC: Member States should raise water prices

Member States must ensure water is priced in line with the Water Framework Directive, states the European Commission in the EU Strategy on Adaptation to Climate Change that was presented the 24^th of February 2021. According to the Cost Recovery Principle, also known as Article 9 in the Water Framework Directive, water service providers should be able to invest in water infrastructure on the basis of charged water prices. Thus they should raise water prices.

Vice president Frans Timmermans of the European Commission (EC) presented the new EU Strategy on Adaptation to Climate Change as part of the Green Deal. The Commission is calling for faster and smarter measures to deal with the effects of climate change. Setting a right price for water is part of this strategy. ‘The European Commission and the Member States must promote the transition to water-saving technologies and practices by setting a price that correctly reflects the value of water. This can be achieved by promoting instruments such as water resource allocation, water-permitting systems and by incorporating environmental externalities’, can be read in the EU Strategy.

Sources of finance

The OECD and the EC joined forces to examine current and future water-related financing challenges faced by EU member states. These include investments needed to comply with EU regulation for water supply, wastewater collection and treatment and flood protection. The OECD-study Financing Water Supply, Sanitation and Flood protection identifies three sources of finance for water supply and sanitation expenditures. They refer to revenues from water tariffs (1), taxes (2) and transfers from the international community (3). These three sources are named shortly the 3Ts.

Financing capacities

According to the OECD financing capacities of Member States reflect the room to manoeuvre with 3Ts. Some countries rely mainly on water tariffs, like for example Denmark. Others countries shift the burden to taxpayers, like Ireland. There are also countries where public budgets allocated to water supply and sanitation heavily rely on EU funding. OECD warns this is not sustainable as EU funds available for water supply and sanitation will decline over time. OECD: “Therefore, EU Member States need to consider more systematic reliance on domestic sources of finance.” Romania and Bulgaria face the biggest financing challenges in the EU as the projected additional level of effort is very high and room for manoeuvre for financing appears to be limited.

Fair distribution of costs

The European association of public water operators Aqua Publica adds water utilities are already facing a wide financing gap. “In the future they have to comply with increasing requirements. This is the result of new EU directives, like the revised Drinking Water Directive and the upcoming revision of the Urban Waste Water Treatment Directive. These are two important updates for the benefit of human health and the environment, but they are expected to come with increasing costs. If you consider the need to implement the cost-recovery principle all these developments they are likely to lead to higher prices”, reacts Jovana Gojkovic from Aqua Publica. “We believe a fairer distribution of costs among the different water users and the full implementation of key principles such as the polluter-pays principle, are essential conditions to address increasing financing needs for sustainable water management in an equitable manner, as well as affordability risks for households.”

3Ts methodology

The European Federation of national associations of  water and wastewater companies Eureau pleas for including investments for water infrastructure in water prices. They step up for the implementation ofthe ‘3Ts’ methodology developed by the OECD. “In order to deliver water services in a sustainable way, all costs must be recovered through tariffs, taxes and or international transfers (funds). “The right balance between these types of funding can collectively make up the basis for sustainable cost recovery, which must reflect the costs structure of the service”, states Caroline Greene from EurEau.

Human right to water

If water prices will rise, consumers might not be able to keep paying for water services leading causing a breach to the Human right to water. The United Nations officially acknowledged the human right to water and sanitation in 2010.  EurEau recommends that the support of customers who cannot pay the water bill should be addressed with social policy instruments and not to be covered by water services. “This is essential to ensuring water services affordability, one of the dimensions of the right to water.”