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Developing Realistic Strategies to Finance Wastewater Treatment

Developing Realistic Strategies to Finance Wastewater Treatment Lessons learned from OECD and Central Asian countries. Monica Scatasta OECD. Overview. Focus on treatment and industrial users Lessons learned Policy design Policy implementation

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Developing Realistic Strategies to Finance Wastewater Treatment

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  1. Developing Realistic Strategies to Finance Wastewater Treatment Lessons learned from OECD and Central Asian countries Monica Scatasta OECD AFRICASAN 2008, Durban

  2. Overview • Focus on treatment and industrial users • Lessons learned • Policy design • Policy implementation • The cost of inaction - recent OECD estimates • Country experiences • Policy design and implementation: 3 cases from the OECD area • Defining financing strategies : An OECD project in Armenia AFRICASAN 2008, Durban

  3. Lessons learned: Policy Design – Closing the loop • Set realistic goals • Understand their cost implications • Make sure these are justified by expected benefits • Define a realistic finance strategy • Who should pay? Polluters vs. beneficiaries - but who are they? Public good component of wastewater treatment : Making the case for public funds highlighting the costs of inaction • Who can pay? Assess available funding and identify financing gap • Reduce costs: Revise CAPEX & OPEX, optimize cost of funds 3. Reassess goals and consider a phased approach AFRICASAN 2008, Durban

  4. Lessons learned: Policy Implementation • Unintended consequences can be very relevant • Relative importance of instruments may change • Actors’ reactions may differ with respect to expectations • The interaction of policy instruments needs to be understood • Can lead to unintended, “bottom-up” policy redefinition • Context evolves over time • Flexibility of instruments is important 3. Results are not achieved overnight • There can be lags in impacts • Phasing might need to be considered • Need to continue making the case for funding: importance of M&E AFRICASAN 2008, Durban

  5. Costs of Inaction - OECD estimates • Worldwide: • Total societal economic benefits almost USD 29 billion/yr, health benefits alone over USD 4m • Each USD spent reaps USD 1.27 in health benefits and USD 11.4 in total benefits • Africa: • USD 2 bn total annual costs • USD 21.7 bn total benefits , of which over 4.7 bn health benefits • Low end estimates for health costs, as the impacts in terms of mortality and burden of diseases are linked with microbial contamination only • Diarrhoeal morbidity reduction: 25% water, 32% sanitation, 45% hygiene, 35-38% water quality interventions (incl. treatment) Source: OECD, 2007 AFRICASAN 2008, Durban

  6. Costs of Inaction (cont’d) Source: OECD, 2007 AFRICASAN 2008, Durban

  7. The EU Urban Wastewater Treatment Directive ( 91/271/EEC) • Understand cost implications:High costs of treatment due to stringent requirements in “sensitive areas” – Many countries did not define sensitive areas based on an assessment of expected impacts • Expected impacts: Costly requirements may not be commensurate with expected impacts – N & P are mainly due to diffuse pollution rather than the targeted point sources • Lag in actual impacts: Water pollution problems persist. Several countries still not in compliance with goals in 2004 (EEA, 2005). • Use of public funds: Substantial grant availability led to overcapacity or unnecessary treatment levels – Requests driven by attempt to secure largest grant vs. optimization of impacts Availability of public funds reduced the incentives to consider a more flexible or phased approach AFRICASAN 2008, Durban

  8. The US Clean Water Act (1972) • Policy design: • Licensing system to curb emissions - Centralised, command and control (C&C) system, with some local role • Federal Construction Grants (since 1987 Revolving Fund) • Unintended consequences : • Grants available for a short period led to treatment overcapacity: incentive for municipalities to treat industrial effluents • Waste surcharges to cover cost of WWT – vary by pollutant, region • Costly C&C: incentive for industries to discharge in public sewers • Mixed evidence on impacts: As charges increased they affected pollution reduction, but their use by some plant operators may have had perverse impacts. Example of “bottom-up” policy change – but design and implementation may have limited incentive effect of surcharges AFRICASAN 2008, Durban

  9. The Netherlands’ Surface Waters Pollution Act (1970) • Policy design: • Licensing system to curb emissions. • Pollution charges earmarked to finance construction of WWTPs Charges linked with cost of treatment – vary by pollutant, region • Part of consultative management process with negotiations • Decentralization at provincial/water board level • Unintended consequences: Implementation of licensing faced problems. Charges had significant impact on pollution loads • Impact changes over time: High charges had immediate impacts 1970-80. Impacts continue but declined since 1986. • Instrument interactions: Charges improved effectiveness of negotiations between industry and water authorities A flexible and cost-effective system AFRICASAN 2008, Durban

  10. Defining a finance strategyThe Armenian case • Strategic Planning: • The need to close the loop with investment planning • Also consider the interaction with water supply and water resource availability • Making the case for public funds:Use estimates of costs of inaction and link expected results with expected impacts on poverty reduction • Continue making the case: Track and communicate progress • Set up up a monitoring and evaluation system for strategic decision-making • Will also support the shift to performance-based budgeting AFRICASAN 2008, Durban

  11. www.oecd.org/water/

  12. References • Bressers, H.Th.A. annd K.R.D. Lulofs, (2002). Charges and other policy strategies in Dutch water quality management, CSTM Report no. 179, ISBN 1301-6457 • EEA, (2005). Effectiveness of urban wastewater treatment policies in selected countries: an EEA pilot study. EEA Report No 2/2005. • Harrington W. and P. Nelson, (2006). Public Treatment of Private Waste: Industrial Use of Municipal Wastewater Treatment, Resources for the Future, Washington, DC • OECD, (2007a)Unsafe Water, Sanitation and Hygiene: Associated Health Impacts and the Costs and Benefits of Policy Interventions at the Global Level, ENV/EPOC/WPNEP(2007)8/FINAL, Paris, France. • OECD, (2007b). Implementation of a National Finance Strategy for the Water Supply and Sanitation Sector in Armenia, Paris, France. AFRICASAN 2008, Durban

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