copy the linklink copied!1. Framing the challenge

Abstract

The chapter explains how compliance with the EU Directives on water contributes to sustainable growth. It identifies some of the main drivers of investment needs for water supply, wastewater collection and treatment and flood protection in Europe. It zooms on contaminants of emerging concern as an example of drivers which will affect investment needs but which is difficult to quantify.

    

This part reiterates the benefits of investing in water and protecting populations and ecosystems from the risks of too much, too little, polluted water and of a lack of access to safe drinking water and sanitation services. Against this backdrop, it characterises the ambition of this review, describes its scope and sketches the method used. This Part also presents and discusses the drivers, which have been identified and used to project expenditure needs.

copy the linklink copied!1.1. The benefits of investing in water

The OECD (2018) argues that water-related risks increasingly affect stability and economic growth, public finances, poor and vulnerable social groups as well as the environment (see Box 1.1 for a definition of water-related risks and water security). In Europe, the BLUE2 report quantifies the value added and jobs in the water sector and in water-dependent sectors: the EU’s water-dependent sectors generate EUR 3.4 trillion or 26% of the EU’s annual Gross Value Added (Spit et al., 2018). Notably, the specific water-dependent sectors and the moderately dependent sectors contribute the most to the EU economy, each accounting for around 10% of total EU Gross Value Added. Moreover, EU’s water-dependent sectors employ around 44 million people, i.e. 24.2% of the total employment, and include 16.3 million enterprises (for more information, see Spit et al., 2018).

Water-related risks demand urgent and concerted action. As populations, cities and economies grow and the climate changes, greater pressure is being placed on water resources, increasing the exposure of people and assets to water risks and the frequency and severity of extreme climatic events. If not properly addressed, rising water stress and increasing supply variability, flooding, inadequate access to safe drinking water and sanitation, and higher levels of water pollution will continue to act as a drag on economic growth.

In its analyses to restore EU competitiveness, the EIB claims that droughts have caused EUR 86 billion damages over the last 30 years. The costs of floods is even higher and amounts to EUR 150 billion in 2002-2013, the largest source of GDP losses from natural disasters in Europe (EIB, 2016). Jongman et al. (2014) projects that annual damages could multiply by four between 2014 and 2050 (from EUR 5.5 billion to EUR 23 billion).

Water security affects industries and their global value chains. It also affects energy security, as 44% of water abstraction in Europe is destined to energy production (hydropower, coal, or nuclear power). It obviously affects agriculture as well, which can use up to 80% of water in Southern regions (EIB, 2016).

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Box 1.1. Water security, defined

The OECD defines water security as achieving and maintaining acceptable levels for four water risks:

  • Too little water (including droughts): Lack of sufficient water to meet demand for beneficial uses (households, agriculture, manufacturing, electricity and the environment);

  • Too much water (including floods): Overflow of the normal confines of a water system (natural or built), or the destructive accumulation of water over areas that are not normally submerged;

  • Too polluted water: Lack of water of suitable quality for a particular purpose or use; and

  • Degradation of freshwater ecosystems: Undermining the resilience of freshwater ecosystems by exceeding the coping capacity of surface and groundwater bodies and their interactions.

These risks to water security can also increase the risk of (and be affected by) inadequate access to safe water supply and sanitation.

The water risks are inter-related. For example, floods and droughts both affect water quality, the provision of safe drinking water, and contribute to degradation of freshwater ecosystems. Polluted water resources, without treatment, are effectively excluded from human consumption and utilisation by industry and agricultural sectors, thereby increasing the risk of water scarcity. Climate change is exacerbating existing water risks, due to altered precipitation and flow regimes, more frequent and severe extreme weather events, altered thermal regimes, and sea level rise. Moreover, the inherent uncertainty in climate change projections makes it more challenging to assess how these risks will evolve in the future.

Investment in water security can help to safeguard growth against growing water risks. Decision makers will need to innovate and adapt, without being limited to the solutions adopted in the past.

The OECD risk-based approach of “Know the risks”, “Target the risks” and “Manage the risks” can assist in prioritising and targeting water risks, determining the acceptable level of risk, and designing policy responses that are proportional to the magnitude of the risk.

Source: Adapted from OECD (2013a), Water Security for Better Lives, OECD Studies on Water, OECD.

Water security affects all countries in Europe, with the greatest threats of water-related risks falling mainly on countries in transition to advanced economies (Box 1.2). Globally, less developed countries face unreliable water supplies, and hence require greater investment to achieve water security. Developed countries – despite being relatively water secure - must continuously adapt and invest to maintain water security in the face of climate change, deteriorating infrastructure, economic development, demographic change, and rising environmental quality expectations.

The benefits of investment in water security are manifold. Investment in water security protects society and sectors from specific water risks, and can have a profound positive effect on economic growth, inclusiveness, and the structure of economies. For example, enhancing water security can reduce the price - and the price volatility - of staple food crops, a key priority in the global economy.

Across Europe, regulation provides incentives and guidance to drive water-related investment that contributes to sustainable growth. Three specific directives merit particular attention: the Urban Waste Water Treatment Directive (91/271/EEC); the Drinking Water Directive (98/83/EC); and the Floods Directive (2007/60/EC). Other Directives provide additional incentives, for instance to address diffuse pollution from nitrates. Ultimately, the Water Framework Directive (2000/60/EC) sets the overall level of ambition and facilitates the co-ordination of objectives and means of implementation for water-related policies and regulations.

Urging EU member states to invest in water security and supporting those most in need are essential contributions to sustainable and inclusive growth across the region. This assessment endeavours to understand the issues and opportunities EU member states face when it comes to investing in water security. It provides robust comparisons across countries, to characterise country-specific situations and challenges and support future discussions on options to overcome these challenges.

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Box 1.2. Relative economic impacts of water insecurity

The Global Dialogue on Water Security and Sustainable Growth, a joint initiative by the OECD and the Global Water Partnership, examines the causal link between water management and economic growth.

Different parts of the world are subject to different water risks, and many countries suffer from all water risks. Some countries are more vulnerable to water risks than others. A country’s hydrology, the structure of its economy, and its overall level of wealth (and associated level of water infrastructure and institutional capacity), are all key determinants of its vulnerability to water risks.

The risk of water scarcity is concentrated in locations with highly variable rainfall and over-exploitation of relatively scarce resources. Given that the dominant use of water is for agricultural irrigation (global average is 70%), the economic consequences of droughts and water scarcity are most pronounced in agriculture-dependent economies.

The economic risks from flooding are increasing in all locations worldwide, due to increasing economic vulnerability, but are greatest in North America, Europe and Asia.

The greatest economic losses are from inadequate water supply and sanitation, and associated loss of life, health costs, lost time, and other opportunity costs. The losses are greatest in Sub-Saharan Africa.

China and India suffer the greatest total economic burden, and number of people at risk, of water insecurity, and are subject to risks of water scarcity, floods, and inadequate water supply and sanitation.

Different parts of the world are subject to different water risks, and many countries suffer from all water risks. Some countries are more vulnerable to water risks than others. A country’s hydrology, the structure of its economy, and its overall level of wealth (and associated level of water infrastructure and institutional capacity), are all key determinants of its vulnerability to water risks.

The risk of water scarcity is concentrated in locations with highly variable rainfall and over-exploitation of relatively scarce resources. Given that the dominant use of water is for agricultural irrigation (global average is 70%), the economic consequences of droughts and water scarcity are most pronounced in agriculture-dependent economies.

The economic risks from flooding are increasing in all locations worldwide, due to increasing economic vulnerability, but are greatest in North America, Europe and Asia.

The greatest economic losses are from inadequate water supply and sanitation, and associated loss of life, health costs, lost time, and other opportunity costs. The losses are greatest in Sub-Saharan Africa.

China and India suffer the greatest total economic burden, and number of people at risk, of water insecurity, and are subject to risks of water scarcity, floods, and inadequate water supply and sanitation.

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Figure 1.1. Relative economic impacts of water insecurity
Figure 1.1. Relative economic impacts of water insecurity

Source: Sadoff et al. (2015), Securing Water, Sustaining Growth: Report of the GWP/OECD Task Force on Water Security and Sustainable Growth.

copy the linklink copied!1.2. Ambition and scope of the project

The overall ambition of the project is to assess the capacity of the 28 EU member states to cover the investment and financing needs they face now and by 2050 related to water supply, sanitation and flood protection. Investment needs to comply with the Water Framework Directive cannot be projected using the same method and will be addressed separately. The study accounted for the outermost regions of the EU in estimation of the investment needs to the extent that these regions are captured by national data reported to Eurostat. The analysis did not consider the specific situations of these outermost regions in terms of financing options for the future.

Projections of future investment needs derive from a baseline of current expenditures (based on best-available and comparable data) and the influence of several drivers of investment needs. Three scenarios are considered. The drivers of investment are discussed in the following section.

  • Business as usual for water supply and sanitation services and flood protection. This scenario projects the same level of effort, with no new policies. Projections are driven by urban population growth (see below the discussion on drivers).

  • For water supply: projections to achieve compliance, efficiency and access. Most EU member states already comply with, or are close to complying with, the Drinking Water Directive (DWD). The revised DWD will trigger additional investment needs, which is reflected in the projections, building on an assessment made by the European Commission. It is anticipated that, even when member states comply with the revised DWD, countries will need to invest in water efficiency and minimise non-revenue water (including leakage). In addition, countries will have to ensure that vulnerable groups have access to safe water. The additional costs of providing access to these groups has been assessed by the European Commission and reflected in this scenario.

  • For sanitation: projections to achieve compliance. Several EU member states do not fully comply with the Urban Wastewater Treatment Directive (UWWTD). The extent of compliance varies across EU member states and has been considered the main driver for additional investment in this domain.

The projections need to be qualified in several ways. First, the business as usual scenario and the projections reflect the current level of effort. They do not consider the potential delay or backlog of investment and the state of existing infrastructures. This is an important caveat for water supply and sanitation services, typically, where current levels of efforts in many countries may not allow for proper maintenance and renewal of existing assets. This may explain why country specific assessments (when they consider the state of the asset and the investment backlog) may differ from the projections made in this report.

Second, the current level of efforts in flood protection was not monetised. Only a few countries monitor financial flows for flood protection, usually the ones who can be expected to spend the most (Austria, the Netherlands). It was not possible to extrapolate on the basis of available data. Therefore, projections on investment needs for flood protection are based on changes in the exposure to flood risks.

Third, emerging challenges, which could not be monetised, are discussed qualitatively. These include climate change and contaminants of emerging concern (e.g. focused primarily on pharmaceuticals for the purpose of this analysis). A rough estimate of investment needs to address contaminants of emerging concern is presented at an aggregate level, using costs measured in Switzerland.

Fourth, options to minimise financing needs exist and will be considered by most countries. This is the case, notably, of i) distributed systems and a range of innovative ways to build, manage and finance water supply and sanitation systems; and ii) nature-based solutions for sanitation and for flood protection. How these options will materialise and affect investment needs in each member state remains highly uncertain. Therefore, such options are discussed in the report, but not reflected in the monetised projections.

Finally, compliance with the Water Framework Directive is not properly captured in the projections: it requires a range of very diverse measures. Therefore, it is difficult to track expenditures that contribute to compliance with the WFD. Moreover, cross-country comparisons of expenditures and costs are unlikely to provide valuable information. The European Commission is considering additional research in 2020-21 to assess how countries implement the economic and financing dimension of the WFD. This report discusses selected issues related to the WFD separately.

Another challenge is not covered here: securing sufficient water resources to meet demand. Supply augmentation, abstraction and production of bulk water are not covered by this project. While this issue gains prominence across EU member states and the costs can be significant, there are too many uncertainties on how countries will address it to substantiate any robust discussion of costs and financial requirements at regional level. For instance, in the UK, the National Infrastructure Commission favours a twin-track approach that combines supply augmentation – via additional reservoirs and reuse and potentially a national water network - with demand management – via leak reduction and systematic roll-out of smart meters (NIC, 2018). Total costs will heavily depend on how these different options are balanced and combined.

The method and data used to support the baseline and the projections are synthesised in Annex B. They are described in more detail in a separate methodological note.

copy the linklink copied!1.3. Drivers of investment needs

Drivers of investment needs in water security are wide-ranging and context-dependent (see Box 1.3 below). What is considered to be an acceptable level of water risk in a given country strongly shapes investment needs. This can shift over time. Generally, as economies develop, the tolerance for water-related risks declines (OECD, 2013a).

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Box 1.3. Experts’ view on future drivers of water infrastructure investment needs

The Report of the OECD-World Water Council High-Level Panel on Financing Infrastructure for a Water-Secure World (Winpenny, 2015) compiles the best available knowledge about future investment and water-related expenditures. The report acknowledges that projections in this area are particularly difficult.

A Delphi survey shed some light on the main drivers for future water infrastructure needs:

  • Social perception of - and responses to - water-related risks (in particular droughts, floods, pollution)

  • Awareness of the value of ecosystems and biodiversity

  • Innovation in water services and infrastructure; and

  • How changes in climate affect water availability and demand.

In a European context, Cambridge Econometrics (2017) reports that main drivers for investment in water supply and sanitation considered by stakeholders are compliance with EU policy, maintenance of sustainable services and higher efficiency in service delivery.

In that context, projections of future investment needs depend on a range of definitions and choices, and these are difficult to compare.

Source: Winpenny J. (2015), Water: fit to finance? Catalyzing national growth through investment in water security, Report of the High-Level Panel on Financing Infrastructure for a Water-Secure World, World Water Council and OECD. Cambridge Econometrics (2017), Bridging the water investment gap, a report to the European Commission DG Environment.

This assessment selects a range of drivers, which are briefly described in this section. They can be identified based on the type of water-related risk.

  • Water supply

    • Urbanisation (and the number of additional people to be connected to water supply systems)

    • Compliance with the Drinking Water Directive

    • The number of people who do not have access to water Additional investment to approximate the best performance in terms of water networks efficiency (minimising non-revenue water or resource losses).

  • Sanitation

    • Urbanisation, i.e. the number of additional people to be connected to sanitation systems

    • Compliance with the Urban Wastewater Treatment Directive

  • Flood protection

    • The value of assets at risk of flooding.

1.1.1. Drivers selected for projections related to water supply and sanitation

In an earlier OECD study (OECD, 2006), Ashley and Cashman projected water-related investment needs as a share of GDP, acknowledging economic growth as a major driver for water-related investment needs. This report builds on this earlier OECD work and expands the range of drivers beyond economic growth to reflect the situation in EU member states. The following text justifies the main drivers.

Demographics and urban population growth

Demographics is known to be a major driver for growth. It is also a major driver for investment in water supply and sanitation, as it dictates the number of people to be connected to services. In the European Union, where a vast majority of people live in urban areas, urbanisation continues to drive investment needs in water supply and sanitation. It also drives the value of assets at risk of flooding.

Currently, on average across the twenty eight member states, 96% of EU citizens are connected to potable water supplies (only 57% in Romania) – the highest connection rates to date. The overall proportion of citizens connected to water supply services is expected to remain stable to 2050 (EC, 2017). This is due to lifestyle as well as living conditions and location (remoteness) in a number of member states, which are not conducive to connections to water supply networks at an affordable cost. A relatively low connection rate may either indicate that selected groups (in particular vulnerable ones) do not have access, or that connection may not be appropriate in places in remote locations (think of Sweden and secondary homes on islands).

Despite a stable proportion of the population maintaining access to water services, overall a greater number of people will gain connection in the future. This derives from the fact that the total population increases in most EU countries.

Figure 1.2 illustrates the high variability of the extent of urbanisation between selected EU member states. The extent of the impact of urban population growth on expenditure needs for water supply and sanitation may depend on the current capacity usage of already installed infrastructure. Some countries (e.g. Germany) enjoy excess capacity, which will allow to absorb urban population growth without (or with limited) extension of existing networks. In contrast, other countries or cities have reached full capacity and any growth in urban population will require additional construction of reservoirs, pipes and treatment facilities (e.g. Dublin, Ireland). In the case of Romania, while the share of urban population is expected to increase, total population is forecasted to decrease.

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Figure 1.2. Share of population residing in urban areas (%)
Figure 1.2. Share of population residing in urban areas (%)

Source: United Nations Department of Economic and Social Affairs (consulted in 2018).

In addition, as the urban population increases, it is anticipated that the number of people who face potential health risks from water-related disease outbreaks in public waters will remain significant, though slightly decreasing from an estimated 22.7 million in 2015 to 20 million in 2050, equivalent to 4% of EU 28 population in 2050. The countries with the greatest proportion of population potentially at risk are: Bulgaria (12%), Romania (8%) and Belgium (9%); whereas the highest numbers of citizens potentially at risk are found in: Italy (3.4m), Spain (3.3m) and Germany (2.7m). Even the best performing countries still have substantial numbers of citizens potentially at risk of water-related disease outbreaks; e.g. the UK (circa 800,000 in 2015). These numbers are expected to decline in most EU member states by 2050 (EC, 2017).

Compliance with the Drinking Water and Urban Wastewater Treatment Directives

Despite an overall high level of compliance with the Drinking Water Directive, some countries may lack funding or face unsustainable financing strategies to achieve and maintain full compliance. This is particularly the case as the proposal for the revised Drinking Water Directive1 considers more stringent standards and increased access to water for vulnerable groups.

Compliance with the UWWTD is high, but several countries are still lagging behind and more efforts are required to reach full compliance. Indeed, a number of countries project additional investment and expenditures to reach compliance in the coming few years2.

The efficiency of water supply services

In addition to additional population to be served and new regulations, all member states face additional challenges related to operating, maintaining and upgrading existing assets and improving the efficiency of water networks. As new assets are built and existing infrastructure ages, the recurrent expenditures to operate and maintain them increase. The efficiency of asset operations and maintenance and effectiveness of recurring expenditures dictate the capacity of existing assets to deliver reliable service over time and the need for renewal in the future. The Figure 1.3 below provides a stylised illustration of the volume of investment needs and the share allocated among different types of expenditures, as the infrastructure develops. At the beginning of a cycle, countries invest in capital-intensive installation of new networks and equipment. Then, upfront capital requirements decrease while the costs of operating and maintaining installed capacities increase. This requires a shift to a different type of expenditure, often financed through distinct instruments: while upfront investment is traditionally financed through public finance, operation and maintenance (O&M) of existing assets are often financed by the revenues of tariffs that reflect the cost of service provision (Ireland is an exception). As infrastructures age, O&M cost increase to a point where investment in renewed assets is required. It remains to be seen how improved O&M and maintenance translate in terms of current and capital expenditures over time.

The Figure below illustrates this sequence, assuming that different countries (countries 1 to 7) kick-start the cycle at different points in time. This phasing reflects the fact that different countries join the European Union in different years and embark in the cycle of complying with the DWD and UWWTD at different times.

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Figure 1.3. Stylised sequence of investments in water supply, sanitation and flood protection
Figure 1.3. Stylised sequence of investments in water supply, sanitation and flood protection

Source: Authors.

For both water supply and sanitation, efficiency gains will remain one of the biggest challenges in EU member states. Asset deterioration results in leakages and decline in water quality, affecting the health of human and ecosystems (both surface and groundwater) and increasing treatment costs downstream.

In its first report on the issue, the European Association of Water Regulators (WAREG, 2017) uses key performance indicators (KPI) to assess the efficiency of services in Europe. The report confirms that there is no single definition of efficiency and KPIs vary (see the definitions from IWA (2016), IBNet - https://www.ib-net.org/toolkit/ibnet-indicators/). Moreover, the report documents the range of operating environments across Europe. As a matter of illustration:

  • Total volume of water sold per person per day ranges from 80 to 234 litres

  • Non-revenue water ranges from 17 to 67% of net water supplied. Distribution losses reported by EurEau (2017) vary between less than 10% (in the Netherlands, Germany and Denmark) and more than 40% (in Malta and Ireland).

  • The total number of breaks per km of pipes varies between 0.1 and 4.43 breaks/km/year

  • The number of staff employed in utilities varies between 1.2 and 8.64 employees per thousand connections.

Such variations reflect geography and history of water supply and sanitation services. France, for instance, has almost 1 million kilometres of pipes on its vast and low-density territory; twice as much as Germany, the UK, or Italy (see EurEau, 2017). Variations also reflect the ability to operate, maintain and renew assets.

Water main leakage and breakage rates are not reduced at significant rates in member states. The situation is especially striking in Hungary, where water losses have increased by 5% between 2005 and 2013 and now reach 26%; Romania, where losses increased from less than 30% to almost 40%; and Bulgaria, where they remain stable at 60% (European Court of Auditors, 2017). The data for Portugal illustrate that the majority of losses results from the distribution network of smaller pipes (retail network) rather than from the transmission network of larger pipes (bulk water systems) (WAREG, 2017).

In addition to investment in renewed infrastructures to reduce leakage, effectively reducing non-revenue water will require investment in data management systems for customer billing, bill collection activities, metering of all uses (including construction and firefighting), and establishment of regular auditing procedures. This will result in operational and capital cost increases across multiple facets of the service provision.

Compliance with the Water Framework Directive

The overall objectives of the EU's water policy are set by the WFD, which aims at the non-deterioration and achievement of good status of all EU water bodies. The UWWTD and the DWD are basic (i.e. compulsory) measures under the WFD. The FD is complementary to the WFD and sometimes leads to trade-offs.

Compliance with the UWWTD certainly contributes to good status, as a series of contaminants are collected and treated before treated wastewater returns to the environment. However, other contaminants may remain in treated wastewater, and additional wastewater treatment is a supplementary measure under the WFD. Moreover, good ecological status also refers to other dimensions; for instance, in the case of surface water, they include the hydromorphology of river bodies.

Compliance with the Water Framework Directive will depend on mitigation of pressures, such as the reduction of nitrates and diffuse pollution from urban or agriculture runoff. It will also depend on the re-naturalisation of rivers and lakes, and clean-up of historic contamination. The cost of such measures to comply with the Water Framework Directive is difficult to estimate, especially in a way that allows for cross-country comparisons3. Therefore, the additional cost of complying with the Water Framework Directive could only be discussed qualitatively in the context of this assessment. This discussion is captured in Part III below.

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Box 1.4. Water mains and sewerage infrastructure renewal in England and Wales

Current replacement rates for sewers in England and Wales are significantly below what is typical for sewers. The rate of expenditure for water mains and sewer renewal rates is £962m (EUR 1,100 million) per annum for the current 5-year investment period, which is estimated to lead to pipe networks beginning to fail more often, affecting water customers and the environment.

A study by UK Water Industry Research (2017) predicts that by 2050:

  • the number of water main bursts will increase by 20%

  • the number of interruptions to water supplies will increase by 25%

  • leakage will increase by 40% unless other leakage control measures are significantly increased

  • sewer blockages and collapses, and the resulting flooding and pollution, will increase by 6%.

Table 1.1 shows the required increases in renewal rates and associated relative expenditure.

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Table 1.1. Rates of expenditure for "best estimate" scenarios

 

Current

(2015-2020)

Short term

(2020-30)

Long term

(2030-70)

Water mains

 

% annual renewal

0.6

1.2

1.3

Cost per unit length (index)

100

100

152

Expenditure (index)

100

200

330

Sewers

% annual renewal

0.2

0.8

1.2

Cost per unit length (index)

100

100

113

Expenditure (index)

100

400

680

The study also examined potential new technological developments that will reduce expenditure needs by reducing the rate at which both new and existing pipes fail, reducing the cost of new pipes (or pipe rehabilitation), or reducing the consequence of pipe failures. The study concluded that incremental improvements are expected in the area of new materials development, but their impact is likely to be small regardless of the year they are adopted. The highest expected impact would come from further development of the ability to predict performance via continuous monitoring.

Source: UKWIR, 2017.

1.1.2. Drivers selected to project expenditures for flood protection

In many European countries actual flood risk is expected to increase in the future due to climate change and socio-economic developments. On the one hand, flood probabilities are expected to increase due to climate change induced impacts on river discharges, sea level rise and extreme weather events. On the other hand, flood damages are also expected to increase due to economic and population growth. Consequently, investments in measures to flood risk will be required to maintain current flood protection levels in the future.

For the purposes of this report, flood protection investment need is defined as the financial resources that are required to maintain actual (existing) flood risk (and the corresponding flood protection standards of flood defenses) at the same level until 2050. Upgrading of flood protection standards through new flood policies is not included in the analysis.

A risk-based approach towards flood risk management is adopted, in which risk is defined as the flood consequences (damages, victims) multiplied by the probability of flooding. For projection of river flood risk investment needs, it is assumed that future investment needs will follow the same pace as changes in river flood risk due to climate change and socio-economic developments.

Projecting expenditure needs to protect against riverine floods

As a first step to estimate projected river flood risk investment needs to 2030, the expected change in future flood risk is calculated as the difference between current river flood risk and river flood risk in 2030 due to climate change and socio-economic developments.

A country’s level of flood risk is determined by existing flood protection standards, the corresponding expected economic damage (direct and indirect), and the corresponding expected number of victims (injuries and casualties). Therefore, changes in flood risk to 2030 are represented by three indicators:

  1. 1. Annual expected urban damage (indicator for the value of assets at risk - this represents the vulnerability to direct economic damage)

  2. 2. Value of exposed GDP (indicator for economic activity at risk - this represents the vulnerability to indirect economic damages)

  3. 3. Size of expected exposed population.

The scenario applied to study changes in flood risk indicators is a combination of severe climate change and continued current socio-economic development trends4.

Projecting expenditure needs to protect against coastal floods

Very limited information is available on changes in vulnerability factors that compose coastal flood risk (exposed population in coastal floodplains, exposed GDP in coastal floodplains, exposed urban assets in coastal floodplains) at the EU-28 level. The information that is available is dispersed across different studies, using different assumptions and methodologies, scenarios and time horizons. Only a few studies are available that link projections of coastal flood risk to the vulnerability of coastal areas in terms of economic damages and victims.

In that context, coastal flood risk investment needs to 2030 were qualitatively projected, based on data for three indicators, documented by distinct papers:

  1. 1. Change of population density in areas vulnerable to coastal flooding (Brown et al., 2011): the percentage increase of built-up in areas vulnerable to coastal flooding.

  2. 2. Number of people exposed to flooding (Hinkel et al., 2010): expected number of people subject to flooding to 2050.

  3. 3. Damage costs in the case of a flood event (Hinkel et al., 2010): the annual costs of economic damage caused by the sum of coastal flooding, dryland loss, wetland loss, salinity intrusion and migration.

copy the linklink copied!1.4. Emerging challenges

The section explores two challenges member states face – climate change and contaminants of emerging concern in water bodies - which will affect the costs of supplying water and sanitation services and of protecting against flood risks. Experience with such challenges is still limited and the options to address them vary in terms of costs. Nevertheless, the section signals that investment needs to overcome these challenges can be high, depending on the severity of the challenge, the ambition of the response, and the policies and technologies implemented to respond.

1.1.3. Climate change

Climate change is projected to increase investment needs relating to water. The impacts of climate change on exposure to flood risks are factored in projections of assets, GDP and population at risks of flooding.

The impacts of climate change on expenditure needs for water supply and sanitation are partially captured in the Business as Usual scenario, assuming countries already factor in some level of adaptation to climate change. The need to further adapt the level of service and the infrastructures to future uncertainty and variability of water demand and availability, driven by climate change, is only addressed qualitatively. It is discussed below.

In some regions, increased investment will be required to address less favourable hydrological conditions – declining rainfall and snowpack, increasing variability, and more floods and droughts. Climate change is also likely to impact water quality. For example sea-level rise is projected to extend areas of estuaries and increase salt-water intrusion of freshwater aquifers, resulting in a decrease of freshwater availability, and toxic algal blooms and the growth and survival of pathogens are projected to increase with increases in water temperature, posing greater risk to drinking water quality (OECD, 2017).

Even where conditions become more favourable, there may be transition costs in moving to water management systems that are fit for the new climate regime. See Box 1.6 for a characterisation of efforts to adapt water management to climate change in OECD countries.

In addition, the unprecedented rate of change and potential novel changes outside of historical experience introduce a greater degree of uncertainty beyond what water managers have traditionally had to cope with. This increases the costs of water management, as systems have to be robust to a broader range of potential hydrological conditions.

The EU project ECONADAPT (2015) states that the costs of retrofitting wastewater and stormwater infrastructure to cope with higher water flows under climate change can be high. Hughes et al (2010) estimated the costs of climate change adaptation for OECD countries by region: overall the adaptation costs as a proportion of baseline expenditure range from 0.8 – 3.6% for Western Europe, and 6% - 13% for Eastern Europe for two adaptation scenarios. However, parts of the water system are likely to be open to cost savings in Western Europe, as the costs of new or replacement of existing assets is not very sensitive to changes in the flow volumes conveyed. Hughes et al conclude that upfront investment in adaptation for water and wastewater can generate net positive benefits. Urban drainage systems are one area where adaptation investments can bring net positive benefits over time, alongside urban infrastructure.

The management of combined sewer overflows (CSO) due to heavy rains is a good illustration of the magnitude of the challenge and of the range of options available (see Box 4.3 for a review of options). Countries differ in their risk of exposure to heavy rains. Milieu (2016) clusters member states according to exposure to heavy rains:

"Member States that are particularly at risk for the consequences of heavy rain are: Belgium, Croatia, Italy, Luxembourg, the Netherlands, Portugal, Romania and Slovenia. The list includes several Mediterranean countries, at risk for heavy rainfall, which may be intense, of short duration, following a dry period and potentially leading to flash floods and storm water overflows. Also in mountainous area, higher number heavy rain events can be expected and is expected to lead, where sewer collection systems are present, to storm water overflows. Based on the observed trends, northwest Europe (Ireland, Finland, Sweden, Estonia, Lithuania, and Latvia) has the lowest risk for heavy rainfall (though not the United Kingdom). "

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Table 1.2. Projected impacts of climate change on water across Europe

European sub-region

Impacts of climate change on water

Northern Europe

Temperature rise much larger than global average

 

Decrease in snow, lake and river ice cover

 

Increase in river flows

 

Northward movement of species

 

Increase in crop yields

 

Decrease in energy demand for heating

 

Increase in hydropower potential

 

Increasing damage risk from winter storms

 

Increase in summer tourism

Mediterranean region

Temperature rise larger than European average

 

Decrease in annual precipitation

 

Decrease in annual river flow

 

Increasing risk of biodiversity loss

 

Increasing risk of desertification

 

Increasing water demand for agriculture

 

Decrease in crop yields

 

Increasing risk of forest fire

 

Increase in mortality from heat waves

 

Expansion of habitats for southern disease vectors

 

Decrease in hydropower potential

 

Decrease in summer tourism and potential increase in other seasons

North-western Europe

Increase in winter precipitation

 

Increase in river flow

 

Northward movement of species

 

Decrease in energy demand for heating

 

Increasing risk of river and coastal flooding

Central and eastern Europe

Increase in warm temperature extremes

 

Decrease in summer precipitation

 

Increase in water temperature

 

Increasing risk of forest fire

 

Decrease in economic value of forests

Note: Specific impacts for mountainous regions and coastal and regional seas are not shown.

Source: EEA (2017).

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Box 1.5. Managing combined sewer overflows

There are 650,000 combined sewers across the EU member states, according to EurEau (2016), which discharge untreated wastewater, including priority hazardous substances and other substances into the environment. The regulation of these should ensure that appropriate storage and flow constraints are put in place to at least moderate the potential impacts at proportionate costs.

One option is to separate existing combined sewers into a sanitary network and a stormwater network. The cost to separate all of the combined sewers in the USA is estimated at some US$40.8 billion (EUR 37 billion) at 2012 prices (USEPA, 2016), illustrating the scale of the investment. Still, separate sewer and storm water connections will still cause some level of pollution depending on the level of wastewater/storm water treatment. Therefore, separation should come with downstream treatment using wetlands, ponds, filtration or other suitable systems (in particular to control substances washed from pavements by rainwater). Accordingly, the Netherlands and Germany only promote separation programmes where suitable treatment for rainwater is provided.

Traditional ways of managing CSOs include increasing capacity for storm water storage (including underground storage chambers) to reduce the frequency and amount of overflows. But they are costly at some EUR 1000 or more per cubic metre of storage provided. This approach is still being used in many parts of the EU, for example, in the EUR 6 billion ‘supersewer’ for London now under construction in response to the requirements of the UWWTD. The unique financing model (OECD, 2017), has meant that the projected maximum additional cost to ‘customers’ is estimated at some EUR 22 - 28 per customer per annum by the mid-2020s (in 2015 prices).

An alternative approach is to prevent storm water from entering the sewer network by using green infrastructure. This is invariably cheaper, more adaptable and more resilient than the traditional subterranean storage approach. Certain green infrastructures are better able to handle pollutants. Unfortunately, in certain jurisdictions, the institutional and other arrangements are not conducive to adopting any option other than traditional grey infrastructure as is happening in London (Dolowitz et al., 2017).

Sources: as above; full citations provided in the references list.

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Box 1.6. Efforts to adapt water management to climate change in OECD countries

Progress in adapting water systems to climate change has advanced rapidly in recent years and a significant number of efforts are currently on-going. Impacts on freshwater nearly always feature as a key priority on OECD national risk assessments or adaptation strategies.

The majority of efforts to date have focused on documenting the risk by building the scientific evidence base and disseminating information, but much more can be done to better understand what an acceptable level of risk is for a given population under specific circumstances, and to manage water risks in a changing climate.

In particular, only a handful of countries have begun to address the issue of financing adaptation for water systems. Of those countries that have started financing water systems adaptation, some are mainstreaming adaptation into existing budgetary mechanisms, while others are addressing adaptation via specific water programmes or projects or tapping international financing mechanisms. A few countries have allocated dedicated funding to climate change adaptation in general, which typically includes measures for water.

Source: OECD (2013b), Water and Climate Change Adaptation. Policies to Navigate Unchartered Waters, OECD Publishing; OECD (2015), Climate Change Risks and Adaption: Linking Policy and Economics, OECD publishing.

1.1.4. Contaminants of emerging concern

Contaminants of emerging concern5 (CECs) comprise a vast array of contaminants that have only recently appeared in water, or that are of recent concern because they have been detected at concentrations significantly higher than expected, or their risk to human and environmental health may not be fully understood. Examples include pharmaceuticals, industrial and household chemicals, personal care products, pesticides, manufactured nanomaterials, and their transformation products.

The section focuses on pharmaceutical residues, as several European and other OECD countries gain experience with policy responses. The section builds on OECD work on the issue. Future OECD work on CECs will focus on micro-plastics in 2019-2020.

Pharmaceutical residues in the environment are an emerging concern

Pharmaceuticals are essential for human and animal health. However, they are increasingly recognised as an environmental concern when their residues enter freshwater systems. Pharmaceuticals are present in the environment as a consequence of pharmaceutical production and formulation, patient use, use in food production and improper disposal. Untreated household wastewater and effluent from municipal wastewater treatment plants are the most dominant sources of pharmaceutical residues to freshwater bodies globally; however, emissions from manufacturing plants, hospitals, specialised health care facilities, and intensive agriculture and aquaculture can be important pollution hotspots locally.

The presence of pharmaceutical residues in the environment poses an increasing problem. The number and density of humans and livestock requiring healthcare is escalating. This problem is further exacerbated, particularly in high-income countries, by growing numbers of elderly people with chronic health problems, and an increase in disease related to climate change. With this comes an increase in the quantity and diversity of pharmaceuticals produced, consumed and subsequently excreted.

Active pharmaceutical ingredients are found in surface waters, groundwater, drinking water, soil, manure, biota, sediment, and the food chain. Because pharmaceuticals are intentionally designed to interact with living organisms at low doses, even low concentrations in the environment can have negative impacts on freshwater ecosystems.

For example, active substances in oral contraceptives have caused the feminisation of fish and amphibians; psychiatric drugs, such as Prozac, alters fish behaviour making them less risk-averse and vulnerable to predators; and the over-use and discharge of antibiotics to water bodies exacerbates the problem of antimicrobial resistance – declared by the World Health Organisation as an urgent, global health crisis that is projected to cause more deaths globally than cancer by 2050.

Advances in analytical methods and risk assessment provide opportunities to build a policy-relevant knowledge base

Currently, there are a number of uncertainties associated with the environmental risk assessment of pharmaceuticals due to lack of knowledge concerning their fate in the environment and impact on ecosystems and human health, and the effects of mixtures of pharmaceuticals. The cost of monitoring, limited data for policy development and an absence of a systematic approach to risk assessment were three barriers to taking action identified by governments in the 2017 OECD Questionnaire on Contaminants of Emerging Concern in Freshwaters. Most OECD countries have established watch-lists and voluntary monitoring programmes for certain pharmaceuticals in surface water, but the majority of active pharmaceuticals ingredients, metabolites and transformation products remain unmonitored.

Advances in monitoring technologies can help close the knowledge gap and support policy responses. Real-time in-situ monitoring, passive sampling, biomonitoring, effects based monitoring, non-target screening, hotspots monitoring, surrogate data methods, early-warning systems and holistic modelling can help identify and anticipate sources of contamination. Country and international initiatives are crucial to improve the knowledge base and exchange of data, methodologies and technologies between countries and sectors.

Potential costs of addressing CECs and freshwater. Lessons from Switzerland

Current policy approaches to manage pharmaceutical residues in water are often reactive (i.e. measures are adopted only when risks are proven and routine monitoring technologies exist), substance-by-substance (i.e. environmental quality standards for individual substances) and resource intensive. Diffuse pollution, particularly from livestock and aquaculture, largely remains unmonitored and unregulated. Such approaches are not adequate for current and emerging challenges.

Switzerland is the first country to tackle the CECs challenge at the national level. The Swiss response to the challenge is described below. This is a systematic approach, which comes at a cost. Annex A summarises data collected in the literature on the possible costs of managing CECs in water streams.

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Box 1.7. Addressing pharmaceutical residues in freshwater. The Swiss approach

Switzerland has committed to remove 80% of CECs from wastewater by 2040. The Swiss Waters Protection Act requires polluted wastewater produced by households, businesses or industry to be treated before being discharged into water bodies. In 2014, the Waters Protection Act was revised, to further improve wastewater treatment for the removal of CECs (including pharmaceuticals). The revised Act involved three policy instruments: i) a new technical wastewater treatment standard, and ii) a nationwide wastewater tax, and iii) public subsidies to fund technical upgrades of WWTPs. The technical standard requires selected WWTPs to remove 80% of CECs from raw sewage, measured on the basis of 12 indicator substances, by 2040.

The standard applies only to WWTPs that meet one of the following three selection criteria:

  • Large WWTP servicing > 80,000 population equivalents (hereafter, p.e.);

  • Medium-size WWTP (24,000-80,000 p.e.) that discharge into small rivers with low dilution ratio; and/or

  • Medium-size WWTP (24,000-80,000 p.e) that discharge into water bodies used for drinking-water purposes.

In total, approximately 120 out of 700 WWTPs met one of the above three criteria for upgrade. It is projected that this will result in a 50% overall load reduction of CECs in surface water. In addition, several WWTPs will be closed and wastewater transferred to larger facilities where the treatment is considered to be more cost effective.

Pilot- and full-scale facilities assessed the effectiveness of various advanced wastewater treatment technologies, including ozonation, powered activated carbon, granular activated carbon, high-pressure membranes and advanced oxidation processes. Ozonation and powdered activated carbon showed the best applicability for Switzerland with the two techniques combined capable of removing 80% of detected CECs in wastewater.

The total investment cost to equip 100 WWTPs with advanced treatment technology was estimated to be CHF 1.2 billion (EUR 1.1 billion). Operation and maintenance costs were estimated to be an additional CHF 130 million (EUR 119.6 million) per year, equivalent to 6% of the total current cost of wastewater treatment in Switzerland annually. The majority of the costs (75%) are financed by a new nationwide wastewater tax of CHF 9 (EUR 8.3) per person per year, which is earmarked in a federal fund to upgrade WWTPs. The remaining 25% of costs are covered by the municipalities. As WWTPs are upgraded and become operational, the municipalities are exempted from the tax.

Despite having higher estimated costs than preventative source-directed measures, the end-of-pipe approach was selected because it was more predictable, measurable and feasible, and received support from industry, business, farmers, the research community and international actors. Furthermore, a national online survey indicated that the public were willing to pay the tax for reducing the potential environmental risk of pharmaceuticals; the average willingness to pay per household was CHF 100 (EUR 92) per year, generating a total annual economic value of CHF 155 m (EUR 142.6 million) per year.

Source: Summary of case study provided by Florian Thevenon, WaterLex International Secretariat, Switzerland. See OECD (2019) for more information.

For this project, the OECD has extrapolated the costs of the Swiss approach to 28 EU member states, using data on urban population in agglomerations above 80,000 p.e. Depending on the pace of investment, the aggregate level of additional expenditure to implement the Swiss approach to mitigating CECs at EU level (28 member states at the time of drafting) is projected to be between EUR 129 and 206 billion over 2020-2040.

This projection does not ambition to provide an indication of the future costs of treating CECs across the European Union: in practice, while Switzerland was the first country to embark on a national strategy to address CECs in freshwater, other counties are likely to explore a combination of options, potentially reducing investment costs. Technology costs are likely to fall over time as well. Therefore, the projection below can be considered as a theoretical exercise, and provides an upper estimate of the costs of addressing pharmaceutical residues in freshwater in Europe. To minimise these costs, countries may wish to consider a combination of options, as sketched by the OECD below.

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Figure 1.4. Total investment needs by 2040 for CEC treatment – extrapolation of the Swiss approach
Figure 1.4. Total investment needs by 2040 for CEC treatment – extrapolation of the Swiss approach

Note: Both scenarios assume that 50% of the population in large agglomerations is connected by 2030 and another 50% by 2040. Scenario 1 assumes a linear investment: each year 0.04% of the population will be connected from 2019 to 2030 and 0.05% between 2030 and 2040. Scenario 2 assumes that 50% of the population is connected in one go in 2030 and another 50% is connected in 2040.

Source: OECD calculation.

From monitoring to taking action: OECD policy recommendations

The policy recommendations were developed independently of the Communication from the European Commission on the same topic: Pharmaceuticals in the environment (EC, 2019b). Both policy guidance documents share a life cycle approach to pharmaceuticals impacts on the environment. The European Commission indicates 6 action areas: actions to raise awareness and promote prudent use, improve training and risk assessment, gather monitoring data, incentivise “green design”, reduce emissions from manufacturing, reduce waste and improve wastewater treatment.

Whilst acknowledging that pharmaceuticals will continue to play a necessary and critical role in human and animal health, the OECD identifies five strategies based on proactive policies that can cost-effectively manage pharmaceuticals for the protection of water quality and freshwater ecosystems:

  • Improve knowledge, understanding and reporting on the occurrence, fate, toxicity, and human health and ecological risks of pharmaceutical residues in water bodies in order to lay the ground for future pollution reduction measures

  • Consider inclusion of environmental risks in the risk-benefit analysis of authorisation of new pharmaceuticals; risk mitigation approaches may be considered for high-risk pharmaceuticals

  • Adopt continued environmental monitoring of high-risk pharmaceuticals post-authorisation (including of those already approved on the market)

  • Proactively manage pharmaceuticals through drinking water safety plans (see WHO 2011 Guidelines for Drinking Water Quality), monitoring programmes, and incidence reporting to identify and prevent contamination and adapt policy to new science

  • Take advantage of alternative innovative monitoring technologies and water quality modelling, to minimise costs. Cost-effective approaches are likely to prioritise substances and water bodies of highest concern, and target areas of high pollution, all of which require improved knowledge.

Source-directed approaches to impose, incentivise or encourage measures in order to prevent their release into water bodies. For example, options may include: i) water quality or technology standards for discharges from pharmaceutical manufacturing plants as part of Good Manufacturing Process audits, product certification and green procurement standards, ii) taxes levied on hazardous substances to incentivise changes in production processes or substitution of substances with less hazardous alternatives (but equally beneficial to human or veterinary health), and iii) subsidies from government to promote and support research and development for green and sustainable pharmacy.

Use-orientated approaches to impose, incentivise or encourage reductions in the inappropriate and excessive consumption of pharmaceuticals. Options may include: i) restrictions on over-the-counter sales of, and self-treatment with, priority pharmaceuticals ii) bans or restrictions on the excessive or unnecessary use of pharmaceuticals that have known harmful environmental impacts (i.e. antibiotics as livestock growth promoters, and diclofenac as pain and inflammation relief), and iii) public health campaigns and training of physicians, pharmacists and veterinarians to promote the rational use (right patient, right drug, right dose, right time) of priority pharmaceuticals.

End-of-pipe measures – as a complimentary measure to the above strategies – that impose, incentivise or encourage improved waste and wastewater treatment to remove pharmaceutical residues after their use or release to the environment. Options may include: i) increased wastewater tariffs or government subsidies to incentivise advanced wastewater treatment plants, ii) best available techniques for improved wastewater treatment at hospitals (if not collected in municipal wastewater treatment system), and iii) extended producer responsibility legislation with regulatory requirements and targets for correct waste disposal of unused pharmaceuticals.

Collaboration and a life-cycle approach. Ultimately, a life-cycle approach combining a policy mix of the above four strategies and involving several policy sectors is required to effectively deal with pharmaceuticals across their life-cycle, including pharmaceutical design, authorisation, manufacturing, prescription, over-the-counter purchases, consumer use (patients and farmers), collection and disposal, and wastewater treatment. Given the risks identified in this report, action should be taken to reduce impacts to the maximum feasible extent throughout the pharmaceutical chain.

All stakeholders along the pharmaceutical chain have a critical role to play in the transition to more effective management of the risks to water quality, ecosystems and human health from pharmaceutical pollution. Voluntary participation alone will not deliver; economic and regulatory drivers from central government are needed.

Policymakers will need to factor in financing measures for the upgrade, operating and maintenance costs of wastewater treatment plants, as well as policy transaction costs to facilitate the transition from reactive to proactive control of pharmaceutical residues in water bodies.

The case of Extended Producers’ Responsibility

It is estimated that 10-50% of prescription medications are not taken as per the doctors’ orders and unused or expired medicinal waste may be disposed of via the toilet - therefore offering zero therapeutic benefit and resulting in water pollution. Although the contribution of improper disposal of pharmaceuticals to the overall environmental burden is generally believed to be minor (Daughton and Ruhoy, 2009), pharmaceutical collection schemes are still considered to be important (OECD, 2019).

Various systems have been developed around the world to recover and manage waste pharmaceuticals from households. Drug take-back programmes provide the public with a convenient way to safely dispose of leftover medications. In Europe, collection schemes of unused/expired medication are an obligatory post-pharmacy stewardship approach that reduces the discharge of pharmaceuticals into environmental waters (via WWTPs) and minimises the amounts of pharmaceuticals entering landfill sites (OECD, 2019).

Public collection schemes of unused pharmaceuticals are established in several OECD countries either as voluntary schemes or mandated by legislation (Table 1). Collection programmes are funded either by the government (e.g. Sweden, Australia) or by Extended Producer Responsibility (EPR) in line with the Polluters-Pays principle (e.g. in Canada, Belgium, Spain and France) (Barnett-Itzhaki et al., 2016). Through EPR legislation, pharmaceutical companies are required to collect and dispose of the unused pharmaceuticals their companies put on the market. The advantage of EPR systems is that it takes the burden off the government and requires industry to finance and manage the collection and safe disposal (usually through incineration) of unused drugs. Companies can internalise these costs in the price of pharmaceuticals and can, in theory, provide services more cost-efficiently and be incentivised to manufacture more targeted, personalised medicines to avoid wastage. For more on EPR as a policy approach, see (OECD, 2016).

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Table 1.3. Household pharmaceutical collection and disposal programmes, select OECD countries

Country

Programme coverage

Method

Funding

United States

28 local EPR laws in the US; 5 at state-level, 23 at local government level

Either voluntary programs by firms or governments, or mandatory programs through EPR

Governmental, Industry

Canada

Several regional programs across the country. Four EPR programs regulated under different jurisdictions

Retail pharmacies commonly act as collection sites

Brand-owners and contributions are based on market share.

Australia

National programme

Mandatory, Retail pharmacies commonly act as collection sites

Federal government

France

National programme

Mandatory EPR-scheme, Retail pharmacies commonly act as collection sites

Industry

Sweden

National programme

Mandatory EPR-scheme , Retail pharmacies commonly act as collection sites

Pharmacies

Source: OECD (2019), Pharmaceutical Residues in Freshwater: Hazards and Policy Responses, OECD Studies on Water, OECD Publishing, Paris, https://dx.doi.org/10.1787/c936f42d-en.

EPR schemes may also be a potential policy option to assist with financing the upgrade of wastewater treatment plants to remove emerging pollutants. In Germany, the central government initiated a national dialogue on emerging pollutants (including pharmaceuticals) in water in 2017. In the face of increasing use of pharmaceuticals causing a rise in pharmaceutical residues in waters, the introduction of advanced (fourth stage) wastewater treatment for agglomerations above 5000 people is being discussed, amongst of other possible policy solutions. As part of the dialogue, the German Association of Energy and Water Industries (BDEW) has proposed an EPR scheme as one way to fund the upgrade of wastewater treatment plants to remove pharmaceuticals (see Box below). The scheme has been specifically discussed in the context of the highly polluted Niers River Basin, which hosts several pharmaceutical manufacturing plants.

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Box 1.8. A proposal for an EPR Scheme to recover costs of advanced wastewater treatment plant upgrades, Germany

The cost of upgrading wastewater treatment plants serving a population of >5000 persons in Germany with an advanced (fourth level) of treatment has been estimated to cost €1.2 billion/year or €15.20/person/year. This would result in a wastewater service tariff increase of, on average, 14-17%, and come at a total cost of €36 billion over 30 years.

One financing option proposed is an EPR scheme. Under the proposed EPR scheme, pharmaceutical manufacturing companies operating in a river basin would be obliged to contribute to the cost of wastewater treatment according to their share of pollution (in accordance with the polluter pays principle under the WFD). The EPR scheme is proposed to operate as follows:

  • Establishment of a national water fund and coordination unit to manage the scheme

  • Wastewater utilities install advanced (fourth treatment) stage at wastewater treatment plants if the following two conditions are realised: i) environmental quality standards (EQS) are exceeded for one or more substances in a water body receiving wastewater discharge (the list of substances with an EQS is expanding, as is water quality monitoring); ii) the polluting companies responsible for the pollution can be identified

  • The total costs (capital and O&M costs) of a wastewater treatment plant upgrade are reported to the national water fund coordination unit.

  • Each polluting company is obliged to pay for their share of the cost of the wastewater treatment plant upgrades in accordance with the units of pollution emitted each year (determined by a pollution coefficient (indicator of the environmental harm of the polluting substance) and the volume of pollution emitted each year).

  • Funds received from polluting companies in the EPR scheme will be distributed to wastewater utilities to refund the cost of advanced treatment.

  • The EPR financing option has the following advantages:

  • It prioritises wastewater treatment plants for upgrades, based on environmental impacts of harmful polluting substances

  • It transfers to the costs of treatment to the polluters, and is therefore in alignment with the polluter pays principle and the WFD

  • It provides a financial incentive for polluters to invest in less polluting production processes or more sustainable substances/products (i.e. green pharmacy)

  • It is less difficult and has a lower administrative cost than financing by way of a levy (tax) on pharmaceutical products.

However, the proposed EPR scheme would require a legally binding obligation from government for polluting companies to pay.

Source: Civity (2018); personal communication (2019).

Lessons can be learned from on-going discussions in Germany to inform an EU wide reflection on the relevance and feasibility of EPR schemes to address pharmaceutical residues in freshwater systems. A range of options may be considered, including ones based on a simplified approach, inspired by the EPR schemes developed for solid waste management.

Whilst an EPR scheme to finance upgrades in water treatment plants may be more cost-efficient and effective than a simple tax or levy on pharmaceutical products (as outlined in Box 1), it remains that the most long-term, large-scale and cost-effective solutions to reducing pharmaceuticals in the environment is through preventative source-directed and use-orientated policy measures, early in the pharmaceutical life cycle. Such policy measures may include incentives for the design of green pharmaceuticals or personalised medicines, sustainable public procurement with environmental criteria to limit pollution, and improved diagnostics and restrictions on the inappropriate or excessive consumption of pharmaceuticals with high environmental risk (OECD, 2019).

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Box 1.9. Policy responses to CECs: A state of flux

To better integrate current and future pollutants emissions, their fate and potential adverse mixture effects, the EU is currently developing a chemical strategy for sustainability in the context of the Green Deal. Recognising that CECs may not be great candidates for classic regulation, the Ministry of Ecological and Solidarity Transition in France created a five-year programme with financial incentives (EUR 10 million) aimed at stimulating new innovative projects to manage CECs and empowering local stakeholders. The selected projects targeted domestic, industrial, diffuse and multiple sources of pollution and include solutions for better diagnostics, cost-efficient reduction of CECs and changes in practices of various types of stakeholders.

In the Netherlands, a 2015 incident of pyrazole in the River Meuse (an important drinking water source) triggered the development of a water quality standard (WQS) for pyrazole. The incident also led to the creation of a step-by-step action guide for stakeholders to safeguard public health and drinking water production from future CECs pollution events. In addition, the issuance of industrial permits was revised, mandating the inclusion of the potential effects of CECs on drinking water production. They all contribute to the distinctive Chain Approach in the Netherlands.

Most country responses to date have focussed on upgrading wastewater treatment plants. For example, an extensive study by the Swedish EPA (2017) of over 450 wastewater treatment plants has confirmed that advanced treatment of pharmaceutical residues in wastewater is necessary given the potential long-term effects to the aquatic environment, anticipation of future regulations, a responsibility to consider the Precautionary Principle, and benefits of being a front runner.

Such a policy comes at a cost. The removal of CECs such as pharmaceuticals and fire retardants in wastewater treatment plants (e.g. by ozonization, active carbon filtration) in Finland has been estimated as requiring investments of €700–1400m. This would increase energy use by 30–80% and increase wastewater charges by 9–41%.

In the United Kingdom, The UK Chemicals Investigation Programme estimates that the cost of implementing wastewater treatment upgrades to remove pharmaceuticals is GBP 27-31 billion (approximately EUR 32-36 billion) over 20 years.

Source: OECD (2019), Pharmaceutical Residues in Freshwater: Hazards and Policy Responses, OECD Publishing, Paris.

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Notes

← 1. At the time of the publication of this report, the negotiations for adopting a revised Drinking Water Directive are still ongoing.

← 2. As reported in the information provided by member states to the European Commission when reporting on the state of implementation of the Directive according to Article 17.

← 3. European Commission (2019a), Fitness Check of the Water Framework Directive and Floods Directive – SWD(2019) 439, Brussels

← 4. This corresponds to a combination of Representative Concentration Pathways 8,5 and Shared Socio-economic Pathways 2 from the Intergovernmental Panel on Climate Change 5th Assessment report on climate and socio-economic change scenarios. See the methodological note for more information.

← 5. This section builds on OECD (2019), Pharmaceutical residues in freshwater: Hazards and policy responses, OECD Publishing, Paris

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