Allocation of Costs and Benefits in the Water Framework Directive: A Dutch Exploration - Water and Agriculture: Sustainability, Markets and Policies - page 38

internalised. Hence, the role of environmental costs in the context of water pricing
policies is to signal to what extent they are internalised through existing pricing
mechanisms in society. A number of steps can be distinguished when trying to estimate
the environmental costs associated with water use and services:
environmental Impact Assessment to qualify and quantify the environmental damage
involved;
economic valuation of the physical environmental damage; and
the institutional and financial assessment of the extent to which the estimated
environmental costs are internalised or not through existing price and/or finance
mechanisms and the application of the polluter and/or beneficiary pays principle.
(Brouwer and Strosser, 2004).
Cost recovery makes transparent that within the polluter/user pays principle, the
causer of environmental damage (for instance specific sectors), has to pay to
counterbalance the damage.
The economic value of the environment can be estimated with the help of direct and
indirect economic valuation methods. Based on the estimation of the environmental
damage costs (avoided), through direct or indirect valuation methods, existing pricing and
financing mechanisms can be reviewed to assess to what extent the estimated damage
costs are internalised. Brouwer and Strosser (2004) conclude that there is an important
relationship between environmental and resource costs and the assessment of what has
been labelled 'financial costs' for the purpose of cost recovery. In some cases, these
financial costs are equal to (part of) the environmental and resource costs, namely when
they have actually been internalised through existing pricing or financing mechanisms.
For the purpose of cost recovery, the challenge is to identify and quantify the extent to
which environmental and resource costs are internal or external costs, i.e., actually being
paid and compensated-for or not, by those who have caused the environmental and
resource costs involved.
5. Balancing the costs and benefits within the WFD
Because of the intensive use of the land and the sometimes contrastive interests which
occur in different areas in the Netherlands, it is important to decide on how to deal with
the distribution of costs for water services, after carrying out the CEA and the SCBA.
To find out what the economic consequences of the WFD are on agriculture, nature,
recreation and fisheries, Reinhard (2005) analysed the process of the cost-effectiveness
analysis within the WFD. In this analysis the most important decisions in the CEA are
illustrated for these areas of interest.
At national level decisions have to be made on which measures are considered
disproportionate. Adequate information is necessary to make these decisions. Hence the
selection of relevant information affects the way this decision is made. To decide whether
a measure is disproportionate, information of the costs and the distribution of these costs
is necessary. Decisions on the methods used to gather and present this information are
very important — for instance, in choosing the scenario for autonomous development,
against which the effect of the measures will be compared. The exact specification of