EU Water Law

(D) Pricing of water

The Water Framework Directive contemplates water pricing as an economic instrument of environmental protection, just as if an eco-tax was assessed on the supply of water to consumers. In doing so, it does not require a strict internalisation of external environmental costs linked to the use of water, but instead leaves a margin of discretion to the Member States by providing that they “take account of the principle of recovery of the costs of water services” (Article 9(1)). This implies a “user-pays” principle, and thus an economic instrument and, for determining the appropriate level of pricing, the WFD requires that an economic analysis of water use is undertaken in each river basin so as to provide the necessary information in order to ascertain its full economic costs (Article 9(1)).

Member States were immediately bound to ensure that “by 2010” water-pricing policies get close to internalisation of external environmental costs in two respects. In the first place, those policies “provide adequate incentives for users to use water resources efficiently”, which is indeed the purpose of an economic instrument, albeit not necessarily while deploying its rigidness since such enticement may be achieved by a simple signal given to users and taking the form of a partial internalisation. In the second place, several economic sectors must contribute adequately to the costs of services linked to water use, and this at least with respect each one to the industry, households and agriculture sectors. Again, that contribution must be “adequate”, which leaves the Member States with a margin of discretion inconsistent with a true economic instrument that would be implemented in a rigorous way.

The softening of the mandatory character of the internalisation of external environmental costs linked to water use is unquestionable: while the polluter-pays principle – somewhat extended or reoriented – thus enjoys undeniable explicit recognition as a matter of principle, its application is flexible. Jurisdictional review will not be able to require rigor from the Member States in the establishment of water-pricing, but only that they justify the effective impact of relevant parameters on such pricing.

The water services to be taken into account do not only include the supply of water and the treatment of waste-water strictly speaking. The definition of those services encompasses other activities such as navigation, hydroelectric power generation and flood protection including, as expressly provided for, the abstraction, impoundment, storage, treatment and distribution of water (Article 2(38)).