Economic Analysis of the Water Framework Directive

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					Economic Analysis and the Water Framework Directive
The Water Framework Directive (WFD) requires Member States to provide an economic
analysis of water uses for each river basin by March 2005 (Article 5 and Annex III). The
analysis should provide information on:

       The economic importance of water uses
       Trends in water demand, water supply, investments in the water sector
       Assessing the recovery of the costs of water services.

The economic analysis will also inform further work to include:

       identification of the most cost-effective programme of measures for achieving WFD
        environmental objectives;
       justification of derogations (i.e. achieving environmental objectives within a longer
        time frame, or proposing less stringent objectives because of disproportionate
        costs or technical infeasibility); and
       the designation of heavily modified water-bodies.

SEPA is the competent authority for the delivery of much of the WFD in Scotland and has
responsibility for a range of economic and social analysis. A feasibility study was
commissioned early 2003 to establish the scope and direction for delivering the WFD
Article 5 Economic Analysis of Water Use for Scotland and to contribute to the
development of Scotland's understanding of the application of Article 4 derogations:

       inform stakeholders and experts on the requirements of the economic analysis in
        the Water Framework Directive and on the process initiated by SEPA for
        addressing these requirements;
       scope the economic analysis in the Water Framework Directive and develop a
        practical plan of action to prepare for implementation;
       inform SEPA’s approach to developing a framework for assessing derogation that
        accounts for Scottish Water’s Quality and Standards III investment planning
        process and the introduction of new regulatory regimes under the forthcoming
        Controlled Activities (Scotland) Regulations proposed for April 2006

The Economic Advisory Stakeholder Group
Stakeholder participation in the economic analysis is very important to SEPA to ensure
that the analysis contributes constructively to the emerging regulatory and licensing
system. The Economic Advisory Stakeholder Group was formed to establish the
availability of data and to assist development of a strategy for the delivery of the WFD
economic analysis for Scotland. The group first met on 12 March 2003 following invitations
to a range of organisations, associations and industry representatives. The remit for the
Economic Advisory Stakeholder Group was subsequently agreed. In summary it is:

         1.    To agree the focus of research;
         2.    To receive and “reality-test” data;
         3.    For sub-groups to draft specific sections of reports and develop
               methodological tools as appropriate;
         4.    To provide editorial input to draft reports; and
         5.    To disseminate information to interested parties as appropriate.

Minutes of Meetings
M1 – 12th March 2003          M2 - 19th June 2003             M3 – 19th August 2003
M4 – 4th November 2003        M5 – 13th January 2004          M6 – 11th March 2004
M7 – 8th June 2004

M1 – Principle Economic Requirements of WFD and WEWS
M2 - The Scope of the Economic Analysis in the WFD
M3 – Update on Progress
M7 - Environmental Characterisation of Scotland’s Water Environment

The EASG will contribute to the final report including the opportunity for different economic
actors to report on how they currently make use of water in Scotland.

Sector                         Author                                                SIC
Agriculture            National Farmers Union (Scotland)                             01.00
Aquaculture            The Federation of Scottish Aquaculture Producers              05.02
Coal                   Scottish Coal                                                 10.10
Whisky                 Malt Distillers Association Scotland                          15.91
Tanning                Scottish Tanning Industries                                   19.10
Paper and Pulp         Confederation of Paper Industries                             21.10
Hydro Power            British Hydropower Association                                40.11
Canals                 British Waterways                                             63.22

Reports from other industry sectors and water users are welcome. Reports should be
completed following the standard template and returned to:
SEPA, Erskine Court, Castle Business Park, Stirling, FK9 4TR

R&D Projects
The following R&D projects are now available in support of the economic analysis for

   1. Valuing Water Use in Scotland and Northern Ireland for WFD Implementation
Aim: To assess how important water is to the Scottish economy and the socio-economic
      development of the river basin district.


   1. Identify who benefits from (and would therefore assign value to) water use in
      Scotland and Northern Ireland for Water Framework characterisation purposes.
   2. Develop a practical methodology to value water use in Scotland and Northern
   3. Apply the methodology.
   4. Identify gaps in information and potential sources of additional information.

   2. Dynamics of Water Use in Scotland

Aim:   To provide an accurate picture of the current position (baseline scenario) which will
       be used as the starting point for forecasting likely future development.


   1. Develop the baseline scenario to interpret forecasts in key economic drivers likely
      to influence pressures and thus water usage.
   2. Evaluate trends in water supply and water demand.
   3. Forecast future patterns of use by focusing on changes in general socio-economic
      variables (e.g. population growth), economic growth and implementation of planned
      investments linked to existing regulation

   3. Operation of the Scottish Water Market

Aim:   To describe how cost recovery operates in Scotland and identify to what extent the
       polluter-pays principle applies.


   1. Describe the existing institutional framework.
   2. Assess the current structure and levels of current water pricing and financial cost
   3. Examine environmental cost recovery.
   4. Assess contribution of key water uses/users to the recovery of water services
   5. Review existing knowledge on incentive pricing and report on options of relevance
      to Scotland.

UK Position
Defra is responsible for undertaking the economic analysis for England (and Wales, in
conjunction with the Welsh Assembly Government) to meet the requirements of the WFD
and has a role in ensuring coordination and consistency in the economic analysis across
the UK. Further information on the UK collaborative research programme is available on
Defra’s website.

Other Links

Scottish Executive Cost and Benefit Analysis

Scotland and Northern Ireland Forum for Environmental Research - WFD