Investigation of regulatory efficiency with reference to the EU Water Framework Directive: an application to Scottish agriculture

The Water Framework Directive (WFD) has the stated objective of delivering good status (GS) for Europe’s surface waters and groundwaters. But meeting GS is cost dependent, and in some water bodies pollution abatement costs may be high or judged as disproportionate. The definition and assessment of disproportionate costs is central for the justification of time-frame derogations and/or lowering the environmental objectives (standards) for compliance at a water body. European official guidance is discretionary about the interpretation of disproportionate costs which consequently can be interpreted and applied differently across Member States. The aim of this research is to clarify the definition of disproportionality and to convey a consistent interpretation that is fully compliant with the economic requirements of the Directive, whilst also being mindful of the principles of pollution control and welfare economics theory. On this basis, standard-setting derogations should aim to reach socially optimal decisions and be judged with reference to a combination of explicit cost and benefit curves – an application of Cost-Benefits Analysis and financial affordability tests. Arguably, these tools should be more influential in the development of derogation decisions across member states, including Scotland. The WFD is expected to have extensive effects on Scottish agriculture, which is faced with the challenge of maintaining its competitiveness, while protecting water resources. Focusing the analysis on the socio-economic impacts of achieving water diffuse pollution targets for the sector, a series of independent tests for the assessment of disproportionate costs are proposed and evaluated. These are: i) development of abatement cost curves for agricultural Phosphorus (P) mitigation options for different farm systems; ii) a financial characterisation of farming in Scotland and impact on profits of achieving different P loads reductions at farm level are investigated in order to explore issues on "affordability" and "ability to pay" by the sector; and iii) an investigation of benefits assessment using discrete choice modelling to explore public preferences for pollution control and measure non-market benefits of WFD water quality improvements in Scotland. Results from these tests provide benchmarks for the definition of disproportionate costs and are relevant to other aspects of the economic analysis of water use in Scotland. This study helps to clarify the nature of agricultural water use and how it leads to social tradeoffs with other non agricultural users. Ultimately, this perspective adds to the debate of how and where water is best employed to maximize its value to society. PREFACE AND AKNOWLEDGMENTS This PhD thesis is the product of a journey of four years. An extraordinary journey which has been possible thanks to the Scottish Agricultural College (SAC), the School of GeoSciences of the University of Edinburgh, the Macaulay Institute in Aberdeen and the financial assistance of the Scottish Government Rural and Environment Research and Analysis Directorate (RERAD). I feel privileged to have been given the opportunity to undertake this project and to develop my skills and knowledge as a researcher in environmental economics. It is difficult to summarise the fantastic experiences that I have had in the last four years but I consider it necessary to briefly describe the journey and to acknowledge those individuals who have kindly taught me and given their support and help at various stages of this study. Overall I would like to express my gratitude to my supervisor Dominic Moran. He has been a mentor to me since I met him six years ago and instrumental in the development of this research. I thank him for his guidance, ideas, support and time. I first began the journey in the Scottish Government where I worked for the first six months of the PhD as an assistant economist in the Environment Team of RERAD. This position gave me the opportunity to witness the realities of implementation of the Water Framework Directive in Scotland and to learn first hand about the real challenges of providing economic advice to water policy. As a consequence, I identified the assessment of disproportionality as the main topic for my research. I have fond memories of my time in Victoria Quay. In particular, I would like to thank to Andrew Moxey and Tom Harvie-Clark for the opportunity given. The journey continued in the Land Economy and Environment Research Group of SAC, where I was based during the core part of this PhD during which time I obtained the casestudy for my thesis farming and diffuse sources of water pollution and was given the opportunity to collaborate in other research projects. My thanks go to several members of staff and fellow students in the department and in the College, particularly to the library services and IS group for their computer assistance. Specifically, I would like to thank; Alan Renwick, the Head of the Department, for his treatment of PhD students and for providing us with the conditions and necessary support for undertaking our research; Cesar RevoredoGiha, who was instrumental in the development of chapter 5 of this thesis, for sharing his vast knowledge of agricultural economics with me; Michael MacLeod for his advice and helpful comments throughout all these years; and to, Kostas Ververidis, Clare Hall, Sally Huband, Steven Boyne, Alistair McVittie, Donna Ewen, Davy McCracken, Andrew Barnes and Kate Heal (School of GeoSciences) for their help and support at various points during the last four years. To several colleagues in the Macaulay Institute in Aberdeen, where I have had the pleasure to work as a researcher for the last year in RERAD’s research WorkPackage 3.5. The institute facilitated the funding of the valuation study included in chapter 6 of this thesis. Special thanks go to, Andy Vinten for his input to chapter 4, for offering me a job and for financing (with Dominic) the choice experiments; Klaus Glenk for his help with the survey data, tips on econometric analysis and willingness to share his programming knowledge; Ian Nevison (BioSS) for his statistical support for the design of the experiment; and Mark Jones for the development of GIS maps for the study. I dedicate this work to my family; To my wife Ailbhe, my parents Manuel and Pilar, my brothers Jose Maria and Ignacio, my sister Blanca and her family and my wife’s family for their love and unconditional support. Finally, I would like to express my gratitude to Professor Joe Morris from Cranfield University and Dr Alan Renwick from SAC for their helpful comments, suggestions, and time employed in reviewing this thesis.