PLEASE SCROLL DOWN FOR ARTICLE

Transcription

1 This article was downloaded by: [Brouwer, Roy] On: 18 August 2008 Access details: Access Details: [subscription number ] Publisher Routledge Informa Ltd Registered in England and Wales Registered Number: Registered office: Mortimer House, Mortimer Street, London W1T 3JH, UK Journal of Environmental Planning and Management Publication details, including instructions for authors and subscription information: The potential role of stated preference methods in the Water Framework Directive to assess disproportionate costs Roy Brouwer a a Institute for Environmental Studies (IVM), Vrije Universiteit, Amsterdam, The Netherlands Online Publication Date: 01 September 2008 To cite this Article Brouwer, Roy(2008)'The potential role of stated preference methods in the Water Framework Directive to assess disproportionate costs',journal of Environmental Planning and Management,51:5, To link to this Article: DOI: / URL: PLEASE SCROLL DOWN FOR ARTICLE Full terms and conditions of use: This article may be used for research, teaching and private study purposes. Any substantial or systematic reproduction, re-distribution, re-selling, loan or sub-licensing, systematic supply or distribution in any form to anyone is expressly forbidden. The publisher does not give any warranty express or implied or make any representation that the contents will be complete or accurate or up to date. The accuracy of any instructions, formulae and drug doses should be independently verified with primary sources. The publisher shall not be liable for any loss, actions, claims, proceedings, demand or costs or damages whatsoever or howsoever caused arising directly or indirectly in connection with or arising out of the use of this material.

2 Journal of Environmental Planning and Management Vol. 51, No. 5, September 2008, The potential role of stated preference methods in the Water Framework Directive to assess disproportionate costs Roy Brouwer* Institute for Environmental Studies (IVM), Vrije Universiteit, Amsterdam, The Netherlands (Received June 2005; final version received January 2008) This paper examines the issue of disproportionate costs of Water Framework Directive (WFD) implementation using public surveys as a means to inform policy and decision making. Public taxpayers are asked their opinion regarding the implementation of the WFD and its costs. Taxpayers are expected to bear a large share of the cost of WFD implementation, be it through national taxation, local water pollution charges or higher market prices for water related goods and services. The paper s main objective is to illustrate the role of stated preference research to elicit public opinions and perceptions towards socially acceptable levels of water quality and public willingness to pay (WTP) for the expected environmental benefits of the WFD. Stated preference research can be used as a way to assess the concept of disproportionate costs to those who are expected to bear a large share of the costs of WFD implementation, and at the same time address the issue of public participation in the WFD. The survey results are used as a public consultation tool to inform policy and decision makers about public willingness and ability to pay for the implementation of the WFD. This measure can be used as one of the benchmarks to define disproportionate costs in a cost-benefit context. Keywords: Water Framework Directive; stated preferences; disproportionate costs; contingent valuation; cost-benefit analysis; public participation 1. Introduction The European Water Framework Directive (2000/60/EC) (WFD) is one of the first European Directives in the domain of water to explicitly recognise the role of economics in reaching environmental water quality objectives. The Directive calls for the application of economic principles (e.g. polluter pays principle), methods and tools (e.g. costeffectiveness analysis) and for the consideration of economic instruments (e.g. water pricing methods) for achieving good water status for all European water bodies in the most cost-effective manner. Investments and water resource allocations in river basin management plans have to be guided by cost recovery and cost-effectiveness criteria and the polluter pays principle. Furthermore, the plan formulation and assessment process must include a meaningful consultative dialogue with relevant stakeholders. Such a dialogue will inevitably raise socio-political equity issues across the range of interest groups and therefore affect the management strategies to be chosen. * roy.brouwer@ivm.vu.nl ISSN print/issn online Ó 2008 University of Newcastle upon Tyne DOI: /

3 598 R. Brouwer Given the role of economic analysis, it is remarkable to say the least that economic efficiency is not part of the Directive s remit, and cost-benefit analysis (CBA) is not mentioned anywhere in the Directive. The Directive is widely considered and interpreted by policy makers and water managers as an ecological directive, that is, driven by and based upon ecological principles of sustainable water management. A common operational definition of the environmental objectives of the Directive of good chemical status and good ecological status was, despite their definition in Article 2 and many years after the adoption of the Directive, still not available at the time of writing this paper. A similar situation exists for the environmental threshold values to be established under the new European Groundwater Directive (2006/118/EC) and adopted in response to Article 17 in the WFD. Here too, economic efficiency criteria are kept outside the decision-making procedure to fix threshold values for specific groundwater pollutants in order to not mix up the ecological and economic principles. Whether or not the threshold values are feasible and affordable from a social and economic point of view only plays a role after the threshold values have been derived based on ecological criteria. Rights are implicitly assigned to the environment and European citizens to an improved state of the environment or at least the status quo as embodied in the no deterioration rule in the WFD, with no consideration of the social costs and benefits involved, except for the notion that Member States (MS) can seek derogations from the Directive if the costs of meeting the environmental objectives are considered disproportionate. Mentioning excessive costs is not the same as economic efficiency though, as this would require that legislation clearly defines excessive or disproportionate as costs exceeding benefits and this is not the case in any of the European Directives where similar escape clauses have been included (see for example also the IPPC Directive (96/61/EC) or the Habitats Directive (92/43/EEC)). Moreover, the issue of disproportionate costs only seems to appear under pressure from MS and primarily reflect concerns about competitiveness rather than welfare gains and losses. Brouwer and Pearce (2005) argue that European legislation such as the WFD implicitly assigns higher weights to environmental benefits compared to the social costs involved, referred to as asymmetric property rights. Based on an overview of important existing European environmental legislation, including the WFD, they conclude that in none of the evaluated cases a CBA was carried out prior to adoption of the Directive by the European Commission, while in a majority of the individual cases where a CBA was conducted by individual MS the social costs were higher than the benefits, i.e. resulting in a welfare loss. The question here is how MS collectively agree to Directives like the WFD that impose a net social cost on them, and what exactly they consider a disproportionate cost when it comes to the actual implementation of the WFD. The implementation of the WFD across EU MS is expected to cost hundreds of millions and possibly billions of euros in the next decades (De Nocker et al. 2007), while there is very little to virtually no insight into their benefits (Bateman et al. 2006). 1 It is highly questionable whether policy makers and society as a whole are willing to pay these investment sums without any further justification as to their socio-economic benefits. In this paper, the issue of disproportionate costs of WFD implementation is examined using public surveys as a means to inform policy and decision makers about public taxpayer opinion regarding the implementation of the WFD and its costs. As part of the property right asymmetry, taxpayers are expected to bear the largest cost of the WFD implementation, be it through national taxation, local or regional water pollution fees and taxes or higher prices for water intensive products. The paper s main objective is to illustrate the usefulness of large-scale public surveys in the domain of water to elicit

4 Journal of Environmental Planning and Management 599 opinions and perceptions towards socially acceptable levels of water quality and public willingness to pay (WTP) for the expected environmental benefits of the WFD. It is emphasised that these surveys are not intended to replace current decision-making procedures and expert assessment regarding what is good chemical and ecological status or what constitutes a disproportionate cost, but to complement the relevant information flow to support policy and decision making in this area. Public surveys can be regarded as one possible way to organise and report about public participation in the river basin management plans according to Article 14 in the WFD. The remainder of this paper is organised as follows. Section 2 summarises the various views on disproportionate costs in a number of EU MS. This is followed in section 3 by a discussion of the potential role of stated preference research in the WFD implementation. Section 4 presents the results of a mandated CBA of WFD implementation in the Netherlands and illustrates the difficulties encountered when trying to interpret the results in terms of disproportionate costs. This is followed by the results of a large-scale stated preference survey, from which useful additional and complementary information can be obtained. Finally, section 6 concludes. 2. The concept of disproportionate costs in the WFD The procedure to establish the environmental objectives in the WFD is described in Article 4. This Article also allows for so-called derogation, i.e. to lower environmental objectives or delay them in time based on (1) technical feasibility of achieving the objectives and/or (2) disproportionate costs (paragraphs 3 7). Here the focus is on the latter criterion. The concept of disproportionate costs is not a standard economic concept. The assessment of disproportionate costs is subjective (Water Economics (WATECO) Guidance Document, European Communities 2002), depends on the political economy of a country or river basin region, and proves to be surrounded by a great deal of uncertainty as to its exact definition and measurement scale in the practical implementation of the WFD. It refers to a skewed distribution (discrepancy) between an objective and measures for reaching the objective, but concrete national or international benchmarks do not exist to justify exemptions, also not in comparable European Directives such as the IPPC Directive where the concept of Best Available Techniques Not entailing Excessive Costs (BATNEC) is introduced or the Habitats Directive, which refers to imperative reasons of overriding public interests, including those of a social or economic nature. In theory, the assessment of disproportionate costs follows the assessment of the least cost way to reach the WFD environmental objectives (Article 11 and Annex III) and the corresponding distribution of the financial burden across different groups in society (households, agriculture and industry) through existing or future pricing policies as formulated in Article 9 in the WFD. However, in practice, excessive or disproportionate costs usually play an important role already during the first stages of selecting a costeffective programme of measures as a political screening criterion. 2 Whether the costs of reaching the defined environmental WFD objectives are disproportionate depends on the willingness and ability to pay by different socio-economic groups and sectors in society to whom these costs are transferred and who are expected to pay for them. Willingness to pay depends among others on political, sectoral and public preferences for the environmental objectives involved, the environmental and resource costs of current water use (see Article 9), and ability to pay. Ability to pay in turn depends on the financial strength and capacity of the public and private actors involved, which is in part determined by the state of the economy.

5 600 R. Brouwer Given the formal legal definition of disproportionate unequal relationship between two units, in casu the objective and the means to achieve the objective the key question to assess disproportionate costs is to what extent the costs of WFD measures outweigh the benefits of reaching the WFD objectives. From an economic perspective, CBA is the obvious tool to assess this relationship, using either the net present value or benefit-cost ratio as the decision criterion, comparing all positive and negative welfare effects of the WFD measures to achieve good chemical and ecological status. Assuming that all positive and negative welfare effects are properly accounted for in the CBA, a negative net present value (NPV) or a benefit-cost ratio less than one, indicating a national welfare loss, would result in principle in a rejection of the proposed programme of measures to reach the proposed WFD objectives. However, given the public good nature of the WFD objectives and in the interest of future generations, the government may be willing to accept a benefit-cost ratio of less than one. The question then becomes how many times the costs can exceed the benefits before the programme of measures involved is considered disproportionate. Uncertainty plays an important role here too, related to the assessment of the costs and the environmental and social benefits of WFD implementation. Investment costs in water quality improvement are often surrounded by less uncertainty than the associated environmental benefits (Brouwer and DeBlois 2008). An important question then is how much uncertainty policy makers are willing to accept to financially commit to substantial investments without knowing what exactly they receive in return. Another important issue is the scale at which the assessment of disproportionate costs takes place. Costs may be considered disproportionate at the level of an individual region or sector given their financial buoyancy, but economically beneficial at the higher aggregated level of a nation as a whole. On the other hand, the skewed distribution of costs and benefits across time and space and different sectors may be an important reason for policy makers to consider a particular solution undesirable given for example the negative (disproportionate) effects on certain vulnerable regions or groups in society. Since the Directive does not give any concrete suggestions as to when costs should be considered disproportionately expensive (neither do the WATECO guidelines), the definition is left to the MS. Go rlach and Pielen (2007) present some of the different perspectives that exist in MS. In general, there seems to be consensus across the board that the term disproportionate implies that costs are disproportionate in relation to either the benefits of WFD implementation or the available financial resources. In the first case disproportionate implies that the implementation of the WFD even in the least cost way is not economically efficient. If costs exceed benefits, the welfare impact of WFD implementation is negative and it would be better to spend the limited available resources on less ambitious environmental objectives or to spend them in an alternative way altogether, for example, on health care, education or employment. However, a technical issue here is that a CBA requires that all costs and benefits of WFD implementation can be assessed and estimated in an economic way, which may not always be the case. Hence, alternative multi criteria analysis (MCA) methods have been proposed (see note 2) to assess the environmental, social and economic impacts of the WFD. Comparing the costs of WFD measures with the available financial resources, a different type of indicator for disproportionate is found. Even an economically efficient policy may not be affordable if the necessary financial resources are not available. In most MS lack of financial resources is primarily a matter of public budget allocation and hence a political decision. Affordability is expected to be a completely different matter at the level of individual households and economic sectors. In the latter case the competitive position and hence the economic survival of a sector may be at stake depending on the sector s

6 Journal of Environmental Planning and Management 601 financial solvability and viability. In the former case, lower-income households may see their purchasing power reduced to socially and politically unacceptable (poverty threshold) levels. Benchmarks and thresholds will have to be defined at European level on the basis of socially and politically defined acceptability criteria, taking into account differences between MS. For example, the total water bill cannot exceed more than 5% of total disposable household income. If measures are not affordable for a certain sector or group of households, financial transfers can be used to share the burden. This may also be welfare enhancing, as total welfare improves if costs are re-distributed from the relatively poor to the relatively well-off given decreasing marginal utility of income. In France, water managers seem to attach most importance to affordability type of arguments that underline the importance of social factors in defining disproportionate costs. One of the French Water Agencies proposes, for example, a threshold of a 20% increase in absolute costs to screen potentially disproportionate measures, whereas another French Water Agency holds on to an absolute limit of maximum 2% of total household expenditures (Go rlach and Pielen 2007). In the UK, the balance between costs and benefits is considered more important, and attention focuses mostly on the comparison of costs and benefits. Financial arguments are also important, but only after comparison of total costs and benefits. The Netherlands is somewhere in between these two approaches, and both welfare economic and affordability arguments play a role (Brouwer et al. 2005). Most importantly, the Netherlands underline the political character of the disproportionate cost discussion, suggesting that it is up to policy makers to define what thresholds should be used. For this, several indicators are suggested at different relevant levels, such as costs as a percentage of GDP or the percentage increase of the water bill compared to disposable household income. Clearly, for the European WFD to be effective it is important that MS use comparable criteria in defining disproportionate costs and that the methods and indicators used are transparent and clear. In the next section an example will be presented based on the situation in the Netherlands, and the potential role of public surveys in relation to disproportionate costs will be further elaborated. 3. The potential role of stated preference methods in the WFD 3.1. Stated preference methods Stated preference methods are based on social survey techniques to elicit public preferences and have been used since the 1970s by environmental economists to value the non-market benefits of environmental change (e.g. Bateman and Willis 1999, Bateman et al. 2002). Of these, the contingent valuation (CV) method is probably the best known (e.g. Mitchell and Carson 1989). More recently, choice experiments (CE) have gained in popularity as an alternative to CV (e.g. Hanley et al. 1998, Hensher et al. 2005, Hanley et al. 2006). In the surveys, individuals are presented with information about specific environmental changes, the values of which are not accounted for in economic markets or captured through market-based instruments. Individual perceptions, attitudes and preferences regarding these changes are elicited. An important difference between CV and CE is that in the latter case respondents are usually presented with a series of alternative policy scenarios described in terms of their key characteristics including a cost price, whereas in CV surveys respondents are asked to value one or two policy scenarios described in a more holistic way. In order to measure the effect of environmental policy on people s welfare, respondents in the survey are typically also asked for their willingness to pay (WTP) or willingness to accept (WTA) compensation for the gains or losses

7 602 R. Brouwer involved. Of these options the WTP approach has become the most frequently applied and has been given peer review endorsement through a variety of studies (e.g. Arrow et al. 1993). Aggregated across all stakeholders who benefit from the services provided by ecosystems and natural resources, the aggregated WTP or WTA amount provides an indicator of the total economic value (TEV) of any change in their provision, including their quality level. Environmental economists have introduced a taxonomy of this TEV, distinguishing between use and non-use values, in order to account for the various reasons and motives people may have to value environmental change. Stated preference methods such as CV and CE are the only economic methods able to account for possible non-use motivations underlying people s value statements. Whereas use values refer to the values associated with the actual use of the various goods and services provided by ecosystems and natural resources, non-use values are unrelated to any actual or potential use, and may refer for example to the value people attach to preserving ecosystems or species (existence values) or the value people attach to leaving a healthy environment behind for future generations (bequest value). Applications of stated preference methods in European environmental policy, including the WFD, are rare (Brouwer 2006, Hanley et al. 2006). The use of the hypothetical values produced by stated preference methods in actual policy and decision making is not undisputed (e.g. Diamond and Hausman 1994, Jacobs 1997, O Neill 1997, Clark et al. 2000). Examples exist where the inclusion of non-market values, elicited through original valuation research or so-called benefits transfer, in public decision making and CBA more particularly, resulted in protest or a public inquiry and consequently the dismissal of CBA as a decision-support tool (e.g. Moran 1999, Bateman et al. 2000). In order to arrive at useful, authorised values in CBA, economic values have to be accepted by scientists, policy and decision makers and stakeholders involved, i.e. those affected by public policy and decision making and bearing the costs and benefits. This paper does not aim to repeat all the pros and cons against stated preference methods. It is acknowledged that the economic values generated by stated preference methods can be biased and have to be interpreted carefully within the context in which they are elicited. The paper s main aim is to illustrate how stated preference research can be used simultaneously as a way to assess the concept of disproportionate costs to those who are expected to bear a large share of the costs of WFD implementation, and address the issue of public participation in the WFD Public participation and consultation The WFD requires that MS ensure public consultation and encourage active involvement. In the WFD Guidance Document on Public Participation (European Communities 2003), public participation is broadly defined as allowing the public to influence the outcome of plans and working processes. Public includes members of the public (citizens) with only a limited interest in the issue concerned and limited influence on its outcome. Following Arnstein s (1969) participation ladder, the Guidance Document makes a distinction between information supply, consultation and active involvement. Public consultation means that the public can react to plans and proposals developed by the authorities. According to Article 14 in the WFD, consultation refers to written consultation only. The Guidance Document also refers here to the government organising a public hearing or actively seeking the comments and opinions of the public through for instance interviews. Active involvement reflects a higher level of participation than consultation, implying that

8 Journal of Environmental Planning and Management 603 stakeholders are invited to contribute actively to the planning process by discussing issues and contributing to their solution (European Communities 2003) Potential role of stated preference research in the WFD Public surveys are not mentioned explicitly as one of the techniques listed in the WFD Guidance Document on Public Participation, but come close to what the Guidance Document refers to as interviews. A wide variety of public survey formats can be distinguished (e.g. Punch 2003, Groves et al. 2004, Presser et al. 2004). The ones most frequently applied in stated preference studies consist of questionnaires using a combination of open and closed ended questions related to respondent knowledge and awareness of the environment, perception and attitudes towards environmental change, and respondent opinion and preferences for environmental policy. Furthermore, information is collected about respondent socio-demographic background in order to be able to test how representative the survey is for the whole population from which the sample was drawn. Representativeness is usually an important criterion for the implementation of a stated preference survey study if the sample results are used to estimate a TEV for the population as a whole. For example, this can be the population of a town or city, region, state, province, county, river basin or a whole country. The questionnaire surveys can be conducted face-to-face, by mail, telephone or the internet. The questionnaire survey typically produces quantitative data, which are analysed with the help of statistical methods and techniques. Qualitative survey methods produce more detailed in-depth data and information. Increasing the level of detail and trying to obtain more in-depth information from respondents is often at the expense of the data s representativeness (Brouwer et al. 1999). 3 Examples of qualitative survey methods include in-depth interviews with selected groups of stakeholders, focus groups or citizens juries (e.g. Denzin and Lincoln 2005). Stated preference methods using public surveys are one way to ensure that the general public is consulted about proposed plans and test the acceptance of and support for these plans. Representative surveys can in this sense be seen as a non-binding democratic opinion poll, informing policy and decision making about the socially most desirable course of action. Although measured through a representative sample of the whole population, if implemented adequately, everybody affected by the implementation of the WFD in principle has a vote. Besides eliciting public opinion, the stated preference method goes a step further than a voting system and also inquires after respondent financial commitment to plans, for instance as taxpayers. In economics, this financial commitment, preferably revealed through market behaviour, is considered a more reliable indicator of the value people attach to a good, service, programme, policy, or course of action, as it reflects the real trade-off under scarce financial resources between different wants and needs. Given limited budgets and the fact that money can only be spent once, the public at large is consulted to answer the same question policy makers face: how much is society at large willing to give up for environmental improvement. It is important to point out that in a stated preference exercise respondents are not actually asked to pay, they are asked for their behavioural intent. 4 On the other hand, policy makers are not actually spending their own money either, although public scrutiny and accountability have become important facts of political life, even years after decisions have been taken. Much of the academic and political debate surrounding the application of this specific element in stated preference research in environmental policy can be traced back to the fundamental question whether

9 604 R. Brouwer citizens can be framed into behaving as an individual consumer when asked to trade off their money income for public goods like the environment (e.g. Blamey et al. 1995, Curtis and McConnell 2002), the ethics underlying the privatisation of public goods and the measurement of the strength of preferences in monetary terms (e.g. O Neill 1997). Although important to legitimise the use of stated preference methods in environmental policy, it goes beyond the scope of this paper to address these latter issues in more detail here. In the next section, the results are presented of a mandated CBA of WFD implementation in the Netherlands, illustrating some of the problems encountered when trying to interpret the outcomes in terms of disproportionate costs. This is followed by the presentation of a stated preference study in the context of the implementation of the WFD, illustrating how the stated preference results were used as a public consultation tool to inform policy and decision makers about public willingness and ability to pay for the implementation of the WFD. This latter measure, so it is argued, can be used as one of the benchmarks or thresholds to define disproportionate costs at the level of the individual taxpayer. 4. The costs and benefits of the WFD in the Netherlands In order to get an idea of the expected costs and benefits of WFD implementation, the Dutch parliament demanded in 2005 that a strategic CBA be carried out. Water managers were asked to supply information about the potential measures necessary to reach a good ecological status in their basin. A distinction was made between three different WFD implementation levels: a minimum, intermediate and maximum implementation scenario for both surface and groundwater. The contribution of each of these scenarios to the environmental objectives in the WFD were assessed in a qualitative way in terms of their effect on water chemistry, ecology and eutrophication. The maximum scenario obviously contributes most to reaching good chemical and ecological status and the minimum scenario least. In addition, water managers were asked to provide information about the direct costs of current policy, i.e. the measures already planned to be implemented until and including 2009 (V&W 2006a). Table 1 summarises the results. The total costs refer to the total direct costs of technical measures needed to reach the WFD objectives of good ecological status. Possible indirect economic effects are not accounted for. Overall, investments in chemical water quality improvement constitute 60 70% of the total expected investment costs. The remainder mainly consists of investment costs related to ecological restoration of water bodies. An explanation for the high share of investments in chemical water quality is that many measures aimed at improving water quality have already been undertaken in the past decades and the cost-effectiveness of the Table 1. Estimated total costs and benefits of WFD implementation in the Netherlands. Current policy Minimum Intermediate Maximum Present value costs (ebillion) Present value benefits (ebillion) Not known 1.7 ( ) 4.6 ( ) 5.0 ( ) Net present value (ebillion) Not known B-C ratio Not known Source: Adapted from V&W 2006a.

10 Journal of Environmental Planning and Management 605 remaining measures is considered relatively low (V&W 2006a). If the total costs of WFD implementation are compared with the total costs of water management in 2006 in the Netherlands (e3.8 billion, 60% of which is for water quality management (V&W 2007)) the WFD is expected to result in an annual cost increase after 2009 of around 25 to 75% depending on the implementation scenario used. On the basis of the French criterion that cost increases should not exceed 20% (see section 2), even the minimum WFD scenario would thus involve disproportionate costs. In the CBA, the additional costs for the period are also estimated in case the deadline of meeting the WFD objectives is extended ( time derogation ). The total costs are in that case about 15% lower due to the extra time given to implement the necessary measures to reach the WFD objectives. 5 The uncertainties surrounding the estimated cost figures are large. The Water Ministry believes that the figures presented in Table 1 are likely to be an overestimate of the actual costs (personal communication, van der Veeren, 2007). For example, some water managers also included the costs of additional flood protection as a proxy for some of the floodplain restoration measures. A quick scan of the available data suggests that these costs make up approximately 10% of the total costs. Additionally, some of the cost figures include overly expensive, non-effective measures that are unlikely to be undertaken. On the other hand, many examples exist of public investment decisions where ex post costs exceed ex ante costs significantly. Besides possible indirect effects, administration, monitoring and other transaction costs are in most cases also not included in the cost estimations. Unfortunately, more precise information about the uncertainties and assumptions surrounding the cost estimates is not available. Given the explorative phase of the policy cycle in which the CBA was carried out, it is assumed here that the costs can be 25 50% higher or lower. 6 Assuming that the total annual costs are 50% lower than the cost estimates presented in Table 1, the annual cost increase as a result of the WFD over and above current expenditures for water quality management is between 12 and 40%. A quick look at the market and non-market benefits of WFD implementation based on a very rough benefits transfer study carried out in 2006 (Witteveen en Bos 2006) showed that the most important benefits consist of the increased value of houses near water bodies with improved water quality (40% of the total benefits), followed by the economic value of nature conservation (30%), recreation (15%) and biodiversity (15%). For most benefits market values, including expenditures and cost estimates, were used as proxies. The present values of these benefit estimates are also presented in Table 1. A range is presented based on the authors of the study own expert judgement that the benefit estimates can be approximately 20% higher or lower. The values were used to get a first idea about the order of magnitude of the benefits involved. The NPV is negative under each WFD implementation scenario (the discount rate used for both costs and benefits is the prescribed 4% for government investments). On average, the estimated benefits are less than 25% of the total costs. Going from the minimum to the intermediate scenario and from the intermediate to the maximum scenario, the estimated costs increase with 80 and 70% respectively whereas the benefits first increase with almost a factor 3, but then increases by less than 10% from the intermediate to the maximum scenario. 7 Assuming that the total economic costs of WFD implementation are half of the total costs presented in Table 1 and relating these cost estimates to the benefit estimates upper bounds, the costs are on average across all three implementation scenarios still a factor two higher than the estimated benefits. The question is whether this is considered

11 606 R. Brouwer disproportionate or not. In its December 2006 policy note, the government considered the maximum scenario disproportionately costly based on the information provided in Table 1 (V&W 2006b, p. 59). Another way of finding out is to ask those who are expected to pay a large proportion of the costs of WFD implementation how much they are willing and able to pay. 5. Stated preferences for the implementation of the WFD in the Netherlands 5.1. Survey design In October 2003, 5000 questionnaires were sent by mail to a random selection of Dutch households. In the questionnaire they were asked about their knowledge, perception and attitudes towards current water quality in the Netherlands and the introduction of future water quality standards as a result of the implementation of the WFD. The survey was commissioned by the Directorate-General Water of the Dutch Ministry of Transport, Public Works and Water Management. The questionnaire was developed using Dillman s (1978) total design method and consisted of 40 thoroughly pre-tested questions, the majority of which (90%) were closed ended. 8 The CV part of the questionnaire followed standard procedures (e.g. Arrow et al. 1993). WTP was elicited using a dichotomous choice (DC) format with 14 bids, varying from e1 toe200 per household per year. A one-page information sheet was used to inform respondents about the WFD, the current status of water quality in the Netherlands, sources of pollution (households, agriculture, industry), possible measures to improve water quality and a general description of good ecological status as follows: Good ecological status means a cleaner water environment for human beings and wildlife in urban and rural areas, resulting in improved opportunities for a variety of water use functions as depicted on these pictures. (Respondents were referred to a website if they wanted more detailed information about water quality in the Netherlands) In view of the fact that the WFD objectives of good chemical and ecological status were unknown and not specified at the time of the survey, a general description and photographs were used to illustrate the expected impact on water-based recreation and wildlife in and near water. The valuation scenario was developed with the help of RIZA water quality experts. After respondents were informed about the fact that they and other sources of pollution currently already pay for water quality management based on the polluter pays principle, but that additional measures are necessary to reach a good status, they were first asked for their WTP extra in principle for reaching a good ecological status for all water bodies in the Netherlands, and if they replied yes, whether they were willing to pay a specific bid amount in addition to what they currently pay. It was emphasised that everybody would pay and that the money would be used exclusively to improve water quality. General income taxation was used as a payment vehicle given the fact that the valuation scenario referred to a national implementation plan, and pre-test results showed that it was considered important that others will pay too Representativeness In order to encourage people to complete and return the questionnaire, avoid self-selection and get a cross-section of Dutch households, the first 100 respondents were given a gift

12 Journal of Environmental Planning and Management 607 voucher worth e25. The response rate was 27% (N ¼ 1350). Although not high, this response rate is normal for mail survey research in the Netherlands (Brouwer 2006). The sample was representative for the Dutch population as a whole in terms of household size and composition, household income and the spatial distribution of respondent place of residence across the country. Average disposable household income was e24,000 annually. Men were slightly over-represented (60%) (while this is 50% for the population as a whole) and also the age group between 40 and 80 was slightly over-represented. The average age in the sample was 52, which was partly due to the fact that respondents participating in the survey had to be 18 years or older Public perception of water quality and sense of urgency One-third of the Dutch population is unhappy about current water quality. Significant differences are found between inland and coastal waters (Figure 1). Almost 40% perceive freshwater quality in rivers, lakes, creeks and canals as poor while just over 25% feel the same about coastal waters. Only one-fifth of the sample population considered water quality satisfactory. Hence, although not a majority, most respondents perceived water quality as poor, where the quality of coastal waters is generally judged superior to that of inland freshwater bodies. A total of 10% did not have an opinion and one-third thought water quality was neither good nor bad. When asked for their perception of how water quality has changed over time during the past decade, 45% believed that freshwater quality has improved, against 25% who believed the quality of coastal waters is better now than it was 10 years ago (Figure 2). A minority of 15% felt that water quality deteriorated. One-third of all respondents had no idea how water quality has changed over the past 10 years. In reality, the concentration of nutrients and heavy metals in Dutch coastal and inland surface waters has decreased significantly over the past decades (V&W 2004a). A total of 45% of all respondents indicated that they felt insufficiently informed about water quality. A small majority of 51% was happy with the current information supply. A majority of 85% wanted to be informed about water quality and considered this important. When asked about their knowledge of existing water quality standards, a Figure 1. Public perception of current water quality in the Netherlands.

13 608 R. Brouwer Figure 2. Public perception of water quality changes in the Netherlands over the past decade. quarter did not really know, and 5% said they had never heard of this. A total of 15% were well aware of the existence of such standards, while approximately 55% felt they were somewhat familiar with the existing water quality standards. A majority of 97% of the population considered it important to very important that the quality of inland and coastal waters in the Netherlands improves. The most important reasons for wanting improved water quality were concern for their own health (use value) and the quality of life of plants and animals (non-use value), followed by wanting to be able to swim safely and carefree in open waters in the Netherlands (use value), and the conservation of good water quality for their children and grandchildren (non-use value) Public WTP for the WFD and improved water quality A total of 65% of the sample population was willing to pay extra in principle for the implementation of the WFD to improve water quality from the current situation to good water status. Overall, 15% protested against the WTP question because they believed the polluter should pay (and did not believe they polluted the water) or they did not believe the money would actually be spent on improving water quality. Protest bidders typically object to the imposed market structure in a CV study (e.g. Jorgensen et al. 1999, Meyerhoff and Liebe 2006). A high protest rate questions the validity of the valuation design (Arrow et al. 1993). Criteria to determine whether or not a respondent is a legitimate zero bidder to a WTP question or a protest bidder often are arbitrary, if reported at all in CV studies. No strict guidelines exist regarding acceptable protest rates. The notion of acceptability is highly subjective in this context. The protest rate of 15% found in this study is considered too low to invalidate the results, but indicates that the results have to be interpreted with the necessary care because approximately one in every eight respondents seemed to object to the proposed market construct and valuation scenario. Another 15% were not willing to pay for improved water quality mainly because of income constraints. 9 In the study 5% were unsure whether they were willing to pay for improved water quality. Approximately 70% of all respondents were aware of the fact that they already pay for water quality management. However, 61% had no idea how much they currently paid. Of those households who were able to tell how much they currently paid, more than 40% said

14 Journal of Environmental Planning and Management 609 they were guessing. One-third of all Dutch households also do not know how they are paying for water services such as wastewater collection and treatment or whom they are paying for these water services. Average WTP is estimated based on the bid curve presented in Figure 3, representing the cumulative frequency of yes votes at increasing bid levels. As expected, the slope of the curve goes downward as the probability of saying yes to higher bid amounts decreases. Using the Turnbull estimation procedure (Haab and McConnell 1997) yields a lower bound average WTP of approximately e90 per household per year with a 95% confidence interval of around e The parametric linear-logistic result (e.g. Hanemann and Kanninen 1999) is slightly higher, namely e105 per household per year with a 95% confidence interval between e The parametric logistic estimate is hence less accurate than the non-parametric Turnbull estimate. Compared to what Dutch households paid on average for water in 2003 in terms of taxes and charges (e470), this implies that they are willing to pay maximum 22% extra for the implementation of the WFD. So, if taxpayers are asked how much they value the WFD and how much they are willing and able to pay extra for the implementation of the WFD, the total costs should not exceed more than 22% of what they are currently paying, or 0.4% of average household income in the Netherlands in This outcome could be used as a benchmark for future price and tax increases related to water quality improvements as a result of the implementation of the WFD. As expected, significant differences were found between lower and higher-income groups. Respondents having less than the average national income are willing to pay approximately e45 per household per year, whereas respondents having more than the national income average are willing to pay up to almost e165 per household per year. Another interesting finding is that respondents who actively engage in water-based recreation are willing to pay significantly more (e110/household/year) than respondents who never take recreation in or near water (e30/household/year) Validity and reliability The stated preference results presented in this paper were scrutinised for their validity and reliability in a number of ways. The internal consistency and validity was thoroughly Figure 3. WTP bid curve for improved water quality as a result of implementation of the WFD.

15 610 R. Brouwer tested through conventional statistical analysis, confirming a priori expectations concerning the direction of influence of statistically significant explanatory factors of stated WTP such as bid and household income level. The explanatory power of the estimated model was almost 40% (based on the adjusted R-square). Furthermore, consistency and validity were carefully checked by analysing protest bids and respondent understanding of the information provided in the survey and the WTP question. Respondents were asked about their perception of the amount and quality of the information provided in the questionnaire, how easy or difficult it was to answer the WTP question in particular based on the information provided, and how clear it was what they were being asked to pay for. A total of 20% of all respondents said that they found it (very) difficult to answer the WTP question (measured on a 5-point scale ranging from not difficult at all to very difficult ), while 92% of the sample population said that the information provided in the questionnaire to answer the WTP question was (more than) sufficient (measured on a 4-point scale ranging from more than sufficient to completely insufficient ). Ninety-four per cent said they knew exactly what they were being asked to pay for (measured on a 4-point scale ranging from completely clear to completely unclear ). These findings are also important additional indicators of the reliability of the CV results. Finally, the convergent validity of the study results were also tested as the study aimed to provide an indicative upper limit for the expected future increase in household taxes as a result of the extra costs of WFD measures. Comparing the stated preference estimate, for example, with the results from a meta-analysis of international water and wetland contingent valuation studies (Brouwer et al. 1999), the value estimate for overall water quality improvement found in this study appears to be very similar to the values found in other international studies. The average value in previous valuation studies for water quality control was e90 per household per year. This too provides confidence in the results Economic value of WFD implementation Aggregated across the whole Dutch household population (7 million households), assuming that the sample is an unbiased representation of the total population and accounting for the 15% protest rate, a total annual value results of between e476 and 595 million (average equal to e535 million). 10 Discounted over the same time period ( ) as the costs in Table 1, the present value of the non-market benefits is equal to e3.3 billion (95% confidence interval e billion). This is about two times higher than the total benefits estimated under the minimum scenario in Table 1, but e1.3 billion lower than the intermediate scenario. Comparing this TEV with the total costs under the maximum implementation scenario, the latter are a factor eight higher than the estimated benefits (or a factor four if the total costs turn out to be half the size of the cost figure presented in Table 1). Discounted over a 50-year time period in view of the fact that the flow of benefits will not stop after 2015, the present value is almost e12 billion. This is close to the lower bound of the estimated costs for the maximum implementation scenario. 6. Conclusions This paper discussed the concept of disproportionate costs in the WFD and the possible role of stated preference research as a public consultation tool to inform policy and