copy the linklink copied!Annex E. Assessment of RBIs and RFIs to finance flood protection

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Table A E.1. Assessment of RBIS and RFIs to finance flood protection

Instrument

Land taxes

Earmarking of water abstraction and water body use charge

Offset schemes

PES schemes

Real-life examples presented in this report

Taxes for dyke maintenance (NL), Taxes for landowners protected by a dyke (DE)

Proposal in the Po RBD (IT)

Drinking water forests (DE)

Bosco Limite project (IT), SCaMP programme (UK)

1. Revenue-raising capacity

NL: revenues cover up to 95% of the costs of water quality and flood protection activities (Filatova, 2014).

DE: no information could be found.

In general, this instrument can raise significant revenues for flood protection, if tax levels are properly set.

As at the moment is just a preliminary proposal, it is not possible to estimate the revenue-raising potential.

Offset schemes offer a good opportunity to integrate nature protection funding with private capital. As these are voluntary schemes, however, it is likely that offset schemes will never be anything more than an additional source to be combined with other funds.

PES schemes offer opportunities to integrate nature protection funding with private capital. As these are voluntary schemes, however, it is likely that they will never be anything more than an additional source to be combined with other funds.

2. Capacity to steer behaviour

NL: every stakeholder pays accordingly to their interests – so, in principle, stakeholder more exposed pay more, and this provides an incentive for locating activities in areas with lower flood risk.

DE: no information could be found.

Overall, if tax rates are set in relation to exposure levels, this tax provides an incentive for locating activities, constructing of buying buildings outside at-risk areas.

It is just a proposal, so any considerations on this topic is purely preliminary. Earmarking water use and water body use fees for financing flood protection might not convey the right message to users, as users do not necessarily increase vulnerability. In contrast, a land use tax on flood-prone areas would be more effective in providing an incentive for risk-reduction behaviour, as building in areas not at risk would then become more convenient than building in risk-prone areas.

Not applicable – private companies compensate for their environmental impact by restoring ecosystems elsewhere. This does not necessarily imply that they will also reduce the impact caused by their activity.

The schemes are set for nature protection or ecosystem restoration projects; flood protection (e.g. runoff reduction) is a secondary benefit rather than the main reason for setting up the scheme. Further research could focus on whether offset schemes specific for flood risk management do exist.

As in the Bosco Limite project, often PES schemes reward landowners applying good practices on their land: in this sense, PES schemes are a way to reward behavioural change. In the case of flood protection, in fact, PES scheme can focus on risk mitigation behaviour such as for example reforestation or terracing. On the other hand, the scale of such behavioural change will depend on the scale at which the scheme is applied.

3. Adaptability of the financing source

A land tax is generally paid by home and landowners every year, and thus is ensures a constant revenue flow over the years. Thus, revenues from these taxes are well suited for financing modular expenditures in flood protection over time. However, as these taxes ensure quite a steady cash flow over the years, they allow for planning large investments, for example by setting aside. It can therefore be said that this instrument is quite adaptable.

The same considerations made for land taxes apply to this case. Water abstraction and water body use charge are paid by users every year, and this ensures a constant revenue flow over the years. This makes revenues from these charges well suited for financing modular expenditures over the years. At the same time, as they ensure quite a steady cash flow over the years, these charges allow for planning large investments, e.g. by setting aside. Thus, this instrument is quite adaptable.

The adaptability is low, as offset schemes generally focus on a specific protection or restoration action. In the German case, for example, the bottled water company focuses on reforestation, so it is one-shot intervention on each parcel.

PES schemes can be implemented to compensate for specific practices/ actions or for environmentally-sound management of agricultural land. Thus, they can be used to finance day-by-day management of one-shot small measures, such as for example reforestation of a plot of land. They cannot be used to finance large infrastructures.

4. Allocation of costs across public and private investors

Through this instrument, the costs of flood protection are charged on citizens and businesses located in at-risk areas – and thus costs are not born by public authorities. Nevertheless, public authorities are still in charge of the management of such revenue flow, including the transaction costs – and thus the public sector still bears some burden, whereas public investors are not involved at all.

Through these charges, water users would finance flood protection activities – even though the general principle might be arguable (see criterion 2). The costs (or part thereof) are no longer borne by public authorities. Public authorities would still be in charge of the management of revenue flows, including the transaction costs – and thus the public sector would still bear some burden, whereas public investors are not involved at all.

Offset schemes are a good opportunity to inject private funds into nature protection. However, usually the schemes are set for nature protection or ecosystem restoration projects, and flood protection (e.g. runoff reduction) is a secondary benefit rather than the main reason for setting up the scheme.

PES schemes are a good opportunity to inject private funds into nature protection. However, flood protection (e.g. runoff reduction) might be just one of the ecosystem services traded under the scheme, rather than the main reason. Also, the magnitude of private capital raised will depend on the ecosystem services provided by the scheme and on the geographical scale of the scheme.

5. Geographical scale, and possibilities to scale up

This instrument can work at the local, district, regional and/or national level, depending on the administrative structure of a country.

This instrument can work at the local, district, regional and/or national level, depending on the administrative structure of a country.

Offset schemes generally focus on a specific protection or restoration action: thus, even if the scheme might work at the national level, it focuses on localized measures and interventions. To date, to the author’s knowledge, there are no large schemes coordinating offset payments at a large scale, but this possibility could be further investigated.

PES schemes often focus on specific measures or management practices, as shown by the SCaMP example. It is unlikely that they can be used for financing natural flood management as a whole at the watershed level; they will rather be part of a wider financing strategy. In addition, they are often implemented at local or regional scales. Nevertheless, they can be scaled up at watershed scale. Careful planning might identify the scope for setting up multiple schemes at multiple locations (no example is available to the author’s knowledge).

6. Replicability in other countries

This instrument can be adapted to the administrative structures of almost any country – especially considering that most country have some land tax system in place, even though it might not be linked with flood protection investments.

This instrument can be adapted to the administrative structures of almost any country – especially considering that most country have water abstraction charges in place.

In the German case, the offset scheme is an initiative of a private company and a nature protection association, working in agreement with public authorities and private landowners. In principle, in such a form, there should be no inconvenient for implementing a similar scheme elsewhere.

PES schemes are often based on private agreements between ecosystem services providers and buyers (public and private). The SCaMP programme was initiated by a water utility, and is implemented in association with an environmental NGO and the public forestry department, and the collaboration of OFWAT. The Bosco project bridges together private and public actors.

European governance structures might pose some constraints to the development of PES schemes. But PES voluntary nature makes it possible to build agreements outside existing governance structures or in association with such structures.

Source: Acteon (2018), Investment Needs and Innovative Financing Mechanisms for Flood Protection, unpublished report to the OECD, Pari

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