Income effects on willingness to pay measures in the water directive

• Κύριος συγγραφέας: Τυλλιανάκης, Εμμανουήλ
• Άλλοι συγγραφείς: Σκούρας, Δημήτρης
• Μορφή: Thesis
• Γλώσσα: English
• Έκδοση: 2017
• Θέματα: Income elasticity; Willingness-to-Pay; Water Framework Directive (WFD); Environmental economics; Meta-analysis; Risk perception; Ελαστικότητα εισοδήματος; Κοινοτική οδηγία; Νερά; Οικονομικά περιβάλλοντος; 338.927

Economic policy and the subsequent decision-making progress were two of the main points of emphasis of this thesis. Given the novelty of the layout of the WFD which included and demanded a heavy “portion” of policy-making to be informed by economic theory, welfare changes and economic theory were considered in this volume. As the review of the WFD is coming in 2019, this thesis aims to contribute to the evaluation of the Directive and to inform future Directives and measures between the member states. The results from the abatement costs for the four different mitigation measures presented in chapter 4 showed that abatement costs, regardless of mitigation measures and/or climate change scenarios, proved that costs were too high. Costs were high in terms of implementing the various mitigation measures and they also burdened disproportionately more farmers than any other type of stakeholders. Interestingly enough, the WFD followed an approach that can be described “anthropocentric” in its core, by placing human welfare ultimately as the decisive factor in decision-making processes related with the WFD. Although the attainment of GES across the EU and in all water bodies was the ultimate goal of the Directive, the primary focus was human welfare. WFD mandates make clear that if the costs are too high for some groups of stakeholders, if achieving GES proves to disruptive for a part of an RDB or it requires serious investment from the side of local governments that would lead to substantial welfare loss for local stakeholders, then, implementing the WFD was not required. Furthermore, Marginal Abatement Cost Curves (MACCs) in every mitigation measure were high and reductions in fertilizers (thus, costs) had to be substantial in order for their respective MACCs to deviate from any other agri-environmental measure proposed in earlier EU legislation, such as the Common Agricultural Policy (CAP). This raises the question on the real impact of the WFD, both in terms of novelty in the policy side but also in terms of efficiency given the extent of research, funds and time devoted to the designing, assessing, valuing, implementing and monitoring the whole directive and its progress across Europe. These results though are also indicative of the pre-existing water status of the Louros’ watershed which was in a good status and achieving GES required significant start-up costs that “derailed” MACCs. Of extreme interest is the focus of the EU to fund water-related issues in member states. It is evident that the E.U. invested heavily on the implementation of the WFD. There are no available figures of the total spending from the E.U.’ or from member states’ part. Still, evident of how invested the Community was to the Directive is the total allocation of funds that member states could “tap into” to fund projects aiming at various issues related to water resources. There were various funding opportunities, each aiming to provide financial aid to member states as they dealt with the implementation of the WFD and with issues to their water resources. The Cohesion Policy Fund for the period 2007-2013 had a total budget of 344 billion Euros with the goal to fund “capital-intensive investments in water infrastructure and help EU Member States comply with water legislation.” . The primary focus of the Fund was to divert funds to countries whose Gross National Product (GNP) was below 90% of the E.U. average. The Fund’s focus was mainly on water management (namely: prevention of disaster and risks and improving efficiency). Similar to the Cohesion Policy Fund but with a considerably smaller budget is the “Life + Funds” initiative. This focuses on supporting the implementation of the WFD as well as raising awareness on water-related issues. The total budget for the period between 2007 and 2013 was 1,7 billion, with small country-wide projects being awarded sums up to 1 million Euros. It needs to be noted that these sums of money were not ultimately spent by member states, there were available, if specific terms were met. Their significance is that they demonstrate the level of financial commitment from the E.U.’s part to the issue of water. The findings of the disproportionality analysis revealed which groups were the primary cost bearers and the hydrological modeling along with the various climate change scenarios provided useful insights on the types of stressors on the environment. Although the proposed mitigation measure (mitigation measure 2) was the least “invasive” to the environment, still it yielded a negative benefit in the CBA. This can be attributed to the nature of the mitigation practices and to the existing water quality of the case study area. The mitigation practices were rather “vertical” in their nature, being expensive for the farmers and all of their costs being mandatory to occur every year. The water quality of the Louros catchment was not in a bad status in terms of ecological status but still, for it to achieve GES required considerable economic costs. Hypothetically, if other types of mitigation practices were more appropriate given the economic practices taking place in the Louros catchment, MACCs could be less steep and yielding considerably different values than the “no-change” scenario. Thus, the “technology” of cultivating nitrogen fixing legumes on set aside land ensures that, under any climate change scenario, abatement will be higher at any chosen cost level. The cost-benefit analysis in all scenarios did not yield positive Net Present Value (NPV). Although this is not desirable in environmental policy and economics, still, these results can be of great use. One of the most evident deficiencies in the CBA in chapter 6 of this thesis was the misrepresentation of benefits. Only the residents of the three municipal units were considered to be benefited from achieving GES when the river offers a multitude of services to non-residents as well. Apart from the energy generation from the hydroelectric dam at St. Georgios which provides electricity to an area exceeding the boundaries of the Louros catchment, the river has recreational value since activities such as rafting, canoeing, angling and hiking take place there. One can only assume that with the Ionia Odos highway being almost complete, even more visitors will be able to access Western Greece and Louros will attract even more visitors. Furthermore, even direct benefits from achieving GES could be expanded to residents of areas more distant than Arta and Preveza, such as residents from Ioannina, the largest residential area of northwestern Greece. Environmental goods are notoriously difficult to assess as, usually, there are no markets for them to be bought and sold. Neoclassical economic theory allows for the creation of “quasi” markets by assuming that there are close substitute goods that can be traded in the hypothetical markets that are created. This allows for the exchange of goods, achieving equilibrium and the estimation of prices and surpluses. The focus of this thesis is on the environmental good of water quality, (not just water, either drinking, bating, saline or freshwater) with a particular focus on freshwater (although the WFD includes coastal waters in its assessment as it requires the GES to be achieved at least up to 6 nautical miles from the coast of member states). The reason behind that was to establish a well-defined and easily conceivable good whose introduction to a hypothetical market would be relatively easier than other more broadly defined environmental goods. Additionally, as the Eurobarometer studies of 2009 and 2012 show, there is an interest from the public on the issues that affect water quality, amongst others. We also were able to utilize the substantial literature already existing in the field of environmental goods, ecosystem services and environmental economics and valuation, especially the fact that several primary studies on the valuation of freshwater quality already existed in a European context. Environmental goods are greatly debated in terms of their nature, if they are normal, inferior or luxury goods. Depending on the value of the price elasticity, goods are classified as above. The focus of this thesis though revolves around policy measures and how these impact human welfare and therefore examining distributional effects of policy measures such as the WFD was more appropriate. This is achieved through the calculation of the elasticity of WTP which informs on the specific issue of the distribution of benefits across poor and rich households, determining which policy measures are “pro-poor” (elasticity of WTP lower than 1), “pro-rich” (elasticity of WTP higher than 1), or equally distributed (elasticity of WTP equal to 1). The results from chapter 5 of this thesis contribute on this discussion by yielding robust results in terms of magnitude, sign and level of significance of the coefficients, even when the sample is trimmed by as much as 15% from below or above or when certain influential case studies are withdrawn. In most of the econometric methods used, elasticities of WTP were above 1 and up to around 1,5. These results though are dependent on the income measured used to estimate WTP. When official data were used, obtained by Eurostat for the respective NUTS 2 regions of the primary studies, income elasticity of WTP were above 1 meaning that the proportion of WTP to the income measure is increasing as income rises and thus, achieving GES has proportionately higher benefits to richer households than to poorer households. If the explanatory variable of WTP is the income reported by the primary studies, then, income elasticity is below the unit and benefits from achieving GES benefit more the poorer households than the rich ones. These findings reveal the serious policy implications of selecting reliable income estimates and contribute to the debate of whether selecting income as an explanatory variable of WTP for environmental goods and services is required. Furthermore, the policy implications about the distributional effects on income by achieving GES strengthen the views of Hokby and Sorderquvist (2003) that when such distributional concerns are the subject of a cost-benefit analysis, the introduction of weights or at least a sensitivity analysis is required for policy appraisal. This finding also aligns with the broader discussion started by Aaron and McGuire (1970) on the distributional nature of public goods and the wider benefits and positive externalities that they offer. Aaron and McGuire also make the case that the very nature of public goods affects more the “working poor”, an issue to be considered in public budget design and spending. This thesis went a step “backwards in its last chapter, attempting to combine environmental services and the results of environmental and ecological monitoring in an effort to explain human behaviour. We did so by using EU-wide data concerning perceptions of EU citizens and biophysical, chemical, geomorphological and ecological data (the product of new and more demanding monitoring practices as new EU directives such as the Water Framework Directive, the Nitrates Directive and the Marine Strategy Framework Directive). The purpose behind it was to have an overall view on how these ambitious mandates which are deployed to augment human welfare, while having a great financing, implementation and monitoring costs, fare in the perceptions of individuals. Given the heightened willingness of the EU Commission to include public consultation in the designing stages of such directives, citizens’ input becomes more valuable. The simple question behind chapter eight was “what do people view as risks to the water environment of their country, given the actual status of their region’s water bodies”? The responses gave us robust estimates of risk perceptions. Risk perceptions on water issues appear to be determined by various factors, all of them not depending significantly though on the status of the respondents’ water bodies. Instead, pre-existing environmental awareness, high levels of education and sensitivity towards the environment appear to be more determining factors of formulating risk perceptions. Overall, risk perceptions for EU citizens are not affected by the status of the water bodies in their region so much, but rather by the overall pressures in the water environment of their country, and by their pre-existing beliefs and cognitive processing methods. Such findings are mostly consistent with the wide literature of pressures to the environment, most notably perceived pressures from climate change, and shed light in the assessment of top-down policies such as the Water Framework Directive. The key recipients of the benefits of such policies appear to be little informed of the actual pressures of their regions, despite the fact that they perceive themselves as being informed and aware. Additionally, although management of water bodies is mostly assigned to regional bodies (such as the relevant water management plans designed and delivered by each EU prefecture having water bodies), the design of those directives is conducted in an EU-level and many times appears distant of what EU citizens demand. The inclusion of public consultation as an important factor in such policies appears at first to be solving such problems but the findings of chapter 7 demonstrate that the public doesn’t take much into account the actual problems in their regions’ water bodies, or that there is still considerable lack of information for those issues in EU prefectural-level. This thesis heavily relies on the results from two hydrological and land-use models. It used official data on water quality indicators, collaborating with scientific university departments and applying them to the Louros catchment. Although the availability of biophysical and chemical data was not always up-to-date (few data collection points and data sometimes coming from older studies), still, they were enough to inform the INCA (for nitrates and phosphorus) hydrological model to simulate the P concentrations in water under the baseline and the alternative mitigation measures. The INCA( N and P) model prides itself for incorporating as many aspects as possible that affect the water environment such as climate conditions (especially precipitation and temperature), physical conditions (slopes, elevation), soil conditions (especially soil chemistry), hydrography (density of watercourses and manmade interventions such as the irrigation network and drainage ditches). The main drivers and focus of the model was nutrient and sediment transport. The complexity of the model also allowed for climate change scenarios to be incorporated later on on the analysis to project the effects of policy measures according with the four main IPCC (2007) scenarios. Land-use was modeled after combining the four different mitigation measures that focused both on agricultural practices but also in the types of cultivations, combining “practice” and “technology”. These mitigation measures and their future projections were modeled after the IPCC scenarios and the country-specific measures published from the Central Bank of Greece. The results were particularly interesting, especially in terms of water quality. Implementing the WFD mandates would yield only marginal improvements in water quality across the catchment as it was already in good status. Additionally, regardless of the climate change projections, all mitigation measures reduced, again, only marginally the nitrate and phosphorus concentrations.