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Assessing Cost Recovery

A New Comparative Framework in Line with WFD Article 9

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Britta Ammermüller

This study proposes a comparative accounting framework for assessing cost recovery of water supply and sewerage services for households and agriculture in line with the requirements of Article 9 of the EU Water Framework Directive (WFD). It provides an integrative analysis of the partly contradictory objectives of Article 9 and the Directive’s approach to cost recovery. The book defines cost categories and accounting guidelines in line with the specific requirements of WFD Article 9. On this basis, an integrative framework for analysing different financing schemes for water services provision and their compliance with the objectives of Article 9 is developed, along with a pragmatic approach for the incorporation of environmental and resource costs in the overall cost recovery analysis.

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7 Annex 371

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371 7 Annex Box A2.1: Categories of the ‘Total Economic Value’ Direct and indirect use values Use values are defined as values derived by individuals from the actual use of the environment (BATEMAN AND TURNER 1993). They can again be divided into two categories namely, direct use values (e.g. water used for irrigation purpos- es) and indirect use values (e.g. erosion control). Another delineation made in the literature divides use values into primary values or marketed goods and services or consumptive values and secondary values or non-marketed goods and services or non-consumptive values (cf. MARKANDYA ET AL. 2002, BATEMAN 1993, PEARCE AND TURNER 1990). Non-use values It is generally recognized that only the contingent valuation method is applica- ble to the estimation of non-market economic values of natural resources (CARSON ET AL. 2003, CARSON ET AL. 2001, LOUVIERE ET AL. 2000, BATEMAN AND TURNER 1993, SMITH 1993, MITCHELL AND CARSON 1989).364 (1) Option value (and quasi-option value) WEISBROD (1964) first introduced the concept of option value. It refers to the willingness to pay of individuals for ensuring that a particular resource base is available for future use (VENKATACHALAM 2004A) over and above any expected consumer benefit that the person would receive from future use of the resource. The concept is based on two basic arguments, namely uncertainty and irreversibility linked to environmental issues (CARSON ET AL. 2003). In the sense that someone would be willing to pay in order to guarantee that the resource exists should they decide to...

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