After carrying out the ex-ante case study, EPIWATER analysed 30 ex-post case study reviews in search for new hypotheses that would introduce new Economic Policy Instruments (EPIs) as tools for a sustainable water cycle achievement. It should be noted that EPIs can be seen as vague measures since their final objectives are not always clear, and authorities pay more attention to economic outcomes than environmental ones. Furthermore, most of applied EPIs in Europe are obsolete, and are not adapted to recent policies (such as the Water Framework Directive). Finally, as EPIs are not applied individually, it can be hard to distinguish their effects.
The review of case studies revealed that most EPIs have been intended for managing point-source pollution, through a combination of command-and-control measures, pricing schemes and water pollution right trading. This combination of measures has been demonstrated to be highly effective, although the effects are more devoted to reducing water demand than improving water quality.
Regarding scarcity and droughts, marketable water use rights are common tools to improve water distribution. Nevertheless, systems that don’t limit the marketable water transfer according to its use lead to severe environmental threats and increase the pressure on water sources. Scaling up marginal costs, setting subsidies for adopting advanced water management technologies and implanting taxes and fees could be effective additional measures for increasing water use efficiency. Today, EPIs are committed to restore river regimes and are mostly based on economic incentives.
Benchmarking of selected EPIs has demonstrated that they cannot be considered the only tool for improving water management, but is rather a part of an integral policy approach. Thus, although EPIs are usually compared to command-and-control regulations, they must be considered as complementary tools. The best EPIs might not be new measures but well-known tools that are better designed or are appropriately combined to complement each other.
Moreover, although EPIs have traditionally been considered as economic development tools (i.e., for fostering new irrigation techniques or hydropower technologies), they should be redesigned in order to meet also environmental goals. In this sense, properly defining water rights is a critical issue, as well as introducing measures that lead to behavior changes towards water users. The challenges that must be addressed for achieving such water policy framework are, among others, the limitation of information for assessing the effectiveness of EPIs and the difficulty of implementing pricing/trading schemes and payments for environmental services.
Evaluating Economic Policy Instruments for Sustainable Water Management in Europe. Deliverable 3.2 Comparative Analysis Report