Green fiscal reform involves removal of environmentally harmful subsidies, introduction of taxes on pollution and resource depletion as well as full-cost pricing for environmental services. One sector which traditionally has been shielded against Green Fiscal Reform is the water sector, where social and distributional concerns have had priority over charging policies. This may seem a paradox, as the water sector is of major financial significance and traditionally accounts for 1-2 per cent of GDP in developed nations. Moreover, in the European Union the Water Framework Directive prescribes under Art. 9 that EU Member States are to introduce full-cost water pricing including pricing of the environmental and resource costs related to water service provision. With relevance for the perspective of green fiscal reform, the European Union funded research project EPIWATER has surveyed the use of economic instruments for water management across the European Union in a series of case studies. Employing as well ex-post as ex-ante perspectives EPI-Water offers a synthesis of experiences with pricing and allocation mechanisms in the water sectors of EU Member States that are of relevance to Green Fiscal Reform. Water is traditionally regarded as a relatively inelastic necessity good making any pricing effort sensitive and controversial. In this paper we will present findings on the implications of water pricing for the stocks and flows of water resources. These findings suggest how pricing regimes can be better designed to provide support to improved resource efficiencies in water services. Furthermore, we explore the intricate relationships between water quantity and freshwater quality, when pricing regimes are in place, with empirical evidence at the level of specific catchments. Integrated assessment modeling has been employed to track how subjecting water supply to green fiscal reform affects water flows and the provisioning of related environmental services.
Main Research Area:
14th Global Conference on Environmental Taxation, 2013