In the context of the European Green Deal and the recovery from the health crisis triggered by the coronavirus, investments in water can contribute to sustainable growth and to building resilience for countries and their citizens to a range of water and health risks. The EU water sector is governed by the Water Framework, Drinking Water (DWD), the Urban Waste Water Treatment (UWWTD) and the Flood Directives. Recent evaluations of these Directives have shown that these instruments are still broadly fit for purpose and create value for money. Investing in the water supply and waste water sector leads to multiple benefits, ranging from human health over ecosystem protection to tourism, and represents thus an ideal opportunity for those seeking green finance opportunities. However, a number of EU Member States have not yet achieved full compliance with these directives, for a variety of reasons, among them the high costs related to implementation.
The Organisation for Economic Cooperation and Development (OECD) estimates that all EU countries together spend on average EUR 100 billion per year on water supply and sanitation. This needs to increase to meet compliance with the UWWTD and DWD alone. Total cumulative additional expenditures by 2030 for water supply and sanitation amounts to EUR 289 billion for the 28 Member States*. Investments to reach compliance with the UWWTD represent the lion's share of the total additional expenditures. This estimate does, however, not cover needed investments to renew infrastructure, which needs to be stepped up urgently in a number of countries. It also does not cover the expenditure needed to ensure compliance with the Water Framework Directive and the Floods Directive.
The OECD has identified three “ultimate” sources of finance for water supply and sanitation expenditures: revenues from water tariffs, taxes, and transfers from the international community (in Europe, essentially EU funds). In the EU, Member States vary in their use of sources of finance: whilst some, like Denmark, essentially rely on water tariffs, others, like Ireland, shift the burden to taxpayers. Some countries rely heavily on EU funding, which is bound to decrease over time and these countries will need to find new financing sources.
When assessing Member States capacity to finance the water sector, it is clear that for some it will be difficult to increase levels of public budgets allocated to water supply and sanitation. This is also a highly political decision, and involves arbitrage between policy priorities. While affordability constraints are mentioned to justify tariffs below cost recovery levels, data shows that in 24 EU Member States, more than 95% of the population could pay more without facing an affordability issue.
The results stemming from this cooperation between OECD and European Commission, will on EU level inform work on policy development the European Commission seeks to undertake. On national level, it inspires reform agendas in several Member States, with support from the European Commission Structural Reform Support. This collaboration continues, as the European Commission and the OECD facilitate a series of thematic workshops to support the implementation of the policy recommendations in this report.
Background
The European Commission and the Organisation for Economic Development and Cooperation joined forces to assess the scale of investment still required to achieve compliance with the EU water acquis, to better understand financing capacities at country level and to explore options to bridge the financing gap.
The collaboration included visiting 9 EU Member States (RO, BG, PL, ES, LT, SL, SK, CY, and HR). During these workshops representatives from the Member States, from international financing institutions, from the OECD and the European Commission discussed in detail the challenges ahead and possible solutions. These include aspects regarding making the best use of existing assets and financial resources, minimising financing needs, and harnessing sources of finance.
* At the time of the assessment the UK was still part of the European Union.
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Details
- Publication date
- 28 May 2020
- Location
- Brussels