The Theory of Water and Utility Pricing - Global Drinking Water Management and Conservation - page 99

also take into account ability to pay and offer discounts to seniors and those with low
incomes. This is consistent with the theory of the new public economics.

5.7.2 Water Pricing Practice in the European Union

In 2000, the Directive 2000 /60/EC of the European Parliament and of the Council

of 23 October 2000, establishing a framework for Community action in the

“

field of

water policy (EC Water Framework Directive 2000 /60/EC) was released and came

into force in the same year. The purpose of this Directive was to

”

“ coordinate

Member States efforts to improve the protection of Community waters in terms of

quantity and quality, to promote sustainable water use, to contribute to the control
of transboundary water problems, to protect aquatic ecosystems, and terrestrial
ecosystems and wetlands directly depending on them, and to safeguard and develop
the potential uses of Community waters

'

(EC Water Framework Directive 2000 /60/
EC). It is important to note that the Directive 2000 /60/EC recommends all EU
countries achieve full cost recovery in pricing water. According to Article 9 of
Directive 2000 /60/EC, (a) member states shall follow the principle of

”

“

recovery of

”

the costs of water services ; (b) the water-pricing policies need to provide adequate

incentives for users to use water resources efficiently by 2010; (c) member states
shall implement policies that are in accordance with the principle of

”
(d) environmental-related costs (i.e. damage to ecosystems being caused by pol-
lution) and resource-related costs (i.e. over-abstraction of water sources in rivers,
lakes, wetlands and aquifers) should be included in the total costs; and (d) the
effects of economic, geographic and climatic factors on the costs shall be taken into
account. Moreover,

“ polluter pays,

the EU Commission recommends a three-part tariff that

includes (a) a financial costs of supply, (b) a

charge per unit of water used, and (c) a charge per unit of pollution produced.
Furthermore, in order to assure drinking water safety, drinking water treatments are
required to meet all the microbiological, chemical and organoleptic parametric
standards under the EU Drinking Water Directive 98/83/EC. Each member state
shall publish a report every three years on the quality of drinking water.
However, there are wide variations between EU member states in price levels,
which could be caused by variations in costs, returns on capital, investment needs
and sources, structure of prices, willingness to pay higher water prices, even who
sets the prices, and so on (Hrovatin and Bailey 2001 ). Cost differentials are pri-
marily due to the availability and proximity of water, environmental protection, and
variations in the quality of drinking water. In general, the less urbanized member
states in southern Europe face greater cost increases than more heavily urbanized
northern European countries which have already paid for substantial capital costs to
meeting the requirements of EU directives (Hrovatin and Bailey 2001 ). Moreover,
some member states do not allow their utilities to make pro

xed component to cover the xed

ts. For example,
Denmark, Sweden, Belgium, and Ireland require utilities to break even, but make
no pro

ts. Furthermore, most EU member states (such as Denmark, Germany,