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Evaluating Economic Policy Instruments for Sustainable Water Management in Europe

Evaluating Economic Policy Instruments for Sustainable Water Management in Europe

Review of the Assessment Framework and Toolbox

The EPI-Water project aims to understand how Economic Policy Instruments (EPIs) succeed or fail in directing water resources to uses that reflect social value and priorities. The project, which runs from January 2011 to December 2013, uses a multi-faceted Assessment Framework (AF) to make ex-post evaluations of existing EPIs that have been operating in Europe and abroad, and make ex-ante evaluations of potential EPIs that may be implemented within Europe. The Review of the Assessment Framework is available for download.

EPIs use different "delivery mechanisms" to reach their objectives. EPIs can spur behavioural change through incentives or disincentives, change conditions to enable economic transactions, or reduce risk. EPIs can be used as complements or substitutes to existing regulatory or voluntary methods of managing water quality and water flows. EPIs often use price or market mechanisms to change incentives and/or increase the range of potential actions. An EPI aimed at groundwater depletion, for example, might impose a tax on extractions. An EPI aimed at reducing the potential harm from floods may entail requiring insurance against flood damage. The variety of EPIs means that the AF needs to be flexible enough to accommodate particular EPIs but specific enough to allow side-by-side comparisons of these EPIs.

It is difficult to find an objective and widely-accepted measure of EPI performance. Some focus on environmental outcomes (e.g., water quality); others are interested in social impacts (e.g., the incidence of higher prices for domestic water use); still others concentrate on economic efficiency (e.g., the value of crops grown within a water market). The AF is used to clarify (and where possible, quantify) the effectiveness of each EPI according to seven criteria: environmental outcomes, economic outcomes, distributional effects, institutional background, policy implementation, transaction costs, and uncertainty. Each criterion is described in terms of one or more indicators appropriate to the EPI under consideration.

The EPI-Water project partners have produced 30 case studies to facilitate the understanding and operation of EPIs targeted at improving water management. The AF makes it easier to describe EPIs in a thorough, rigorous and coherent manner. Decision makers and stakeholders can then debate and implement EPIs appropriate to their local situations and needs.

Part I of this report gives an overview of the purpose of EPI-Water. Part II reviews the performance of the AF given our experience in using it for ex-post reviews of existing EPIs in Europe and beyond. Parts III and IV contain a revised AF that reflects our experiences and learning from using the AF. We will use this AF for the next phase of EPI-Water, the WP4 ex-ante assessments of several EPIs that have the potential to improve water management in Europe.

The report [pdf, 2.6 MB, English] is available for download.


Zetland, David; Hans-Peter Weikard; Gonzalo Delacamra et al. 2012: Evaluating Economic Policy Instruments for Sustainable Water Management in Europe: Review of the Assessment Framework and Toolbox. Ecologic Institute.

David Zetland
Hans-Peter Weikard
Gonzalo Delacamra
Carlos M. Gomez
Colin Green
Jaroslav Mysiak
Joanna Pardoe
Meri Raggi
Laura Sardonini
Miguel Solanes
Davide Viaggi
Christophe Viavattene
132 pp.
Project ID
Table of Contents

PART I -- Overview
EPIs for managing water resources
Water as an economic good
PART II – Assessment Framework Performance
1. Applying Lessons from WP3 to WP4
1.1 Overview
1.2 Task performance
Environmental outcomes
Economic assessment criteria
Enhanced measurement of distributional effects
Policy implementability
Transaction costs
Criteria interactions
1.3 Assessment against what baseline counterfactual?
1.4 Applying these lessons to WP4
PART III – The Assessment Framework
2. Structure of the framework
2.1 Introduction
2.2 Economic policy instruments (EPIs)
2.3. Assessment criteria
2.5 References
PART IV – Background Annex
3. Environmental Outcomes
3.1 Introduction
3.2 Typology of EPIs according to their intended primary environmental outcomes
3.3 Assessment methods and techniques
3.4 Indicators
3.5 Demonstration example of the assessment of environmental outcomes: voluntary agreements for environmental services in the river Ebro (NE Spain)
3.6 References
3.7 Additional material
4. Economic Assessment Criteria
4.1 Introduction
4.2 Typology
4.3 Assessment methods and techniques
4.4 Possible or suggested indicators
4.5 Demonstration Example
4.6 References
5. Enhanced Measurement of Distributional Effects
5.1 Introduction
5.2 Typology
5.3 Assessment methods and technique
5.4 Indicators
5.5 Social Equity Assessment
5.6 References
5.7 Additional material
6. Institutions
6.1 Introduction
6.2 Typology
6.3 Assessment methods and technique
6.4 Possible or suggested indicators
6.5 Demonstration example
6.6 References
7. Policy Implementability
7.1 Introduction
7.2 Typology
7.3 Assessment Methods and Techniques
7.4 Indicators
7.5 Demonstration example
7.6 References
8. Transaction Costs
8.1 Introduction
Past treatments of TCs
8.2 Typology
8.3 Assessment methods and techniques
8.4 Possible or suggested indicators
8.5 Demonstration Example
8.6 References
9. Uncertainty
9.1 Introduction
9.2 Typology
9.3 Assessment methods and technique
9.4 Demonstration example
9.5 References

Economic policy instruments, Water management, Environmental accounts, Flood, Excess water, Water scarcity/drought, Water pollution, Water price, Pollution tax and charges, Ecosystem service payment, Focus on EU, inclusion of Non-EU case studies,