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EU Policymakers weigh options for water pricing

Putting a price on water is essential to encourage savings but EU policymakers are cautious not to spark a social backlash with a one-size-fits-all solution. "Pay more if you use more" is, however, a model which could work, the MEP in charge of water issues told EurActiv.

"Should Europe really be the front runner in increasing water prices? I am not sure that is the right way to go," said Austrian MEP Richard Seeber (European Peoples Party), who is in charge of water issues at the European Parliament.

"The political message is very tricky", he told a Fondation EurActiv workshop earlier this month.

While Richard Seeber understands that businesses have to cover the costs of collection, storage, filtering and distribution, he believes the final price for consumers should remain low.

"It is also a social issue," he said. "I don't want poor people not to be able to afford water anymore".

The EU's Water Framework Directive, adopted in 2000, requires EU countries to introduce water-pricing policies by 2010 to provide an incentive for people to use water more efficiently.

In order to justify possible price increases, the directive required EU countries to ensure that the costs related to water treatment, distribution and infrastructure maintenance are fully recovered and reflected in the final price.

But EU member states have been slow to introduce pricing policies and many are still dragging their heels over implementing this aspect of the directive.

Governments have traditionally provided large subsidies to ensure that all citizens have access to affordable drinking water. But experts say this has prevented change in wasteful behaviour and has held back much-needed investments in water distribution networks.

"Many of the water systems in the major cities around the world, including the developed world, have losses of 30-40%," said Lars H. Thunell, executive vice president and CEO of the International Finance Corporation, a member of the World Bank Group. "And that's not viable, so we have to make sure that we invest," he told EurActiv in an interview.

Hans Telgen, president of the European Plastic Pipes & Fittings Association (TEPPFA), agreed: "If you look to the efficiency question, then if the price for water is low there's no drive for efficiency," he told EurActiv in a separate interview.

The World Bank also supports pricing policies but says this must be done in a socially responsible way. "In a world where you have scarcity, you have to have a price on things," continued Hans Thunell. "But you also have to take the social dimension into consideration."

Present water withdrawal amounts to 300-600 litres per day per person in industrialised countries, according to UNESCO. However, some countries voluntarily take action to reduce that amount.

In Germany, for example, over the past 20 years, consumption decreased by 17% to 122 litres per person per day in 2009. This drop was primarily due to the use of water-saving household appliances and fittings, better consumer awareness, and a water price generally linked to consumption, according to a recent report of the Federal Ministry for the Environment.

But as these efforts are not shared by all member states, Hans Seeber envisions a 'pay more if you use more' system for the EU as a whole.

Under the scheme, consumers would be entitled to a daily volume of water at a low price - around 200 litres per day - to cover basic needs. The extra amount could be considered as being used for non-essential purposes such as irrigating a garden or filling up a swimming pool, and should be priced differently, he said.

IFC's Hans Thunnel supports the idea: "I like, for example, the South African model where they say that you get a certain amount of free water every day, but if you want to use it for industrial purposes or filling a swimming pool or taking 10 showers a day, you have to pay for it."

However, he refrained from making the proposal in a report he drew on behalf of the European Parliament. "At this stage it is not wise to ask the Commission to come up with a model for that," he said. "Differences are huge, we have just the principles and the Commission is not planning to come forward with such a thing," he explained.

The main reason for the Commission's and Parliament's reluctance is the huge differences in water issues encountered across EU countries.

"The social-economic costs for losing a cubic meter of water will never be same in Finland as, for example, in Cyprus," said Henriette Faergemann, who leads the European Commission's 'scarcity and drought' unit.

"Leakages both between and within member states are significant but there is no one-size-fits-all solution," she stressed, saying "We have found differences from 7% in one state to 48% in another country".

Hans Seeber agreed, saying water losses due to bad infrastructure can be as high as 50% in Bulgaria but less than 5% in Germany. "Many ideas are as good as the other, but none convincing enough to be a one-size-fits-all," he said. He added that a correct price mechanism would value water based on consumption and not at fixed rates set by water suppliers.

This is not the case in all member states. For example, prices in the UK are usually calculated yearly at a flat rate, and often stay the same for several years. Individual households do not have a choice of water provider and often companies can alter the price in order to pay for their investment costs. Early this year (2012), the UK industry regulator, Ofwat, announced an increase of £20 (€25) in annual bills, claiming the increase was 10% smaller than that asked for by water suppliers.

While keeping water prices at affordable levels is a must for governments, pressure is growing to raise prices for environmental reasons.

Studies by the European Environmental Agency (EEA) show that all users alter their water consumption patterns in response to increasing water charges. The EEA says price signals have a clear impact on water use by households, especially in Eastern Europe, where they were previously subsidised.

In Estonia, a fivefold increase in prices between 1994 and 1999 had a "noticeable" effect on consumption, the EEA noted. In Hungary, prices increased from €0.2 to €0.5/m3 after state subsidies were removed in 1992.

Water bills have also traditionally stayed considerably lower than gas or electricity bills, which have tended to rise in recent years after the liberalisation of the EU energy sector.

For the World Bank, the assumption is that the cost of water services should never exceed 5% of household income.

Pricing policies should therefore chiefly target industry and agriculture, Lars Thunell believes. "We have to address the issue of water efficiency in industrial processes, we have to address it in agriculture because 70% of the water that is used is for agriculture," he said.

Richard Seeber agrees and insists that water use in households should not be the main focus of water-saving policies. A much higher potential lies in amount of water used in agriculture and by industry, especially thermal plants, he said.

"Households consumption should really be the last issue. We should pay more attention to the greater concerns," he said, pointing to more water-efficient irrigation techniques could help save water in agriculture.

He added that future pricing proposals should look first at the water used in cooling thermal plants, which use water for free at the moment.

But once again, there can be no one-size-fits-all solution in Europe, said the Commission's Team Leader, Water Scarcity & Droughts, Henriette Faergemann. "In some place it may be more cost-effective to save water in agriculture than in industry or elsewhere," she said. "Water-pricing mechanisms are extremely important and they need to be right and the pricing structure needs to be right in order to frame the right incentives."

The Commission is expected to table its 'Blueprint for Safeguarding Europe's Water' this coming November.

25th May 2012

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