The interest for the use of economic instruments in the field of water policy can be subscribed to the introduction of the European Water Framework Directive. This Directive is the first European Directive which explicitly points to the use of economic instruments in the field of water policy. Research has shown that in theory economic instruments are very efficient and potentially lead to sustainable use of the environment. Therefore, the Netherlands is looking into the possibility of introducing more economic instruments within their current water policy. The Directorate General Water in the Netherlands has pointed out a number of economic instruments they would like to see researched in more detail. This is done in this report. Although it appears that economic instruments are efficient in the economic sense, it is also necessary that the economic instruments fit within the current legal framework of European legislation and principals and within Dutch law. There are many laws, rules and obligations which have to be taken into account before an economic instrument can be introduced. Therefore, the main research question in this paper is: What are the legal implications and possibilities of introducing economic instruments in the field of water management in the Netherlands? Since the main water quality related problems experienced in the Netherlands are caused by the agricultural sector, due to the use of pesticides, fertilizers and manure, the economic instruments discussed in this report focus on bringing down water pollution from the agricultural sector. However, on the political level, the agricultural sector is a sensitive topic, which has led to the adoption of the so called Van der Vlies Resolution, in which it is laid down that the agricultural sector shall not face an increase in costs when measures have to be taken for the implementation of the Water Framework Directive. This implies that also the economic instruments which may be used in the future, cannot not lead to an increase in costs for farmers. This obviously complicates the search for an appropriate economic instrument. One solution is to look into economic instruments which will compensate farmers for taking environmentally friendly measures, which are known as eco-system services. Services, such as the construction of wet buffer strips, not only benefit water quality, but also increase water storage facilities and create ecological habitat. By using compensation payments to realise the performance of eco-system services, farmers will not face an increase in their costs when taking measures to improve water quality. This research has shown that such instruments do fit within the existing legal framework. However, there are several conditions which have to be taken into account to avoid breaching European law. European laws contain obligations which have to be lived up to by the Member States. When these laws require farmers to do something, Member States are not allowed to financially support farmers to do it, as it may be considered as illegal state aid by the European Commission. Farmers can only receive compensation for any additional measures they take on top of what they are obliged to do in the law. Performing eco-system services, such as creating wet buffer strips, are such additional measures. Furthermore, this research shows that the economic instrument of introducing levies on non-point sources of pollution, such as the agricultural sector, would be in line with European obligations. However, since there is no explicit obligation to do so in the law, many Member States are reluctant to introduce such a levy, as it will inevitably increase costs for farmers. Although, European law does not prescribe the use of levies, it does require permits for the discharges into water caused by non-point sources. It may thus be possible that the agricultural sector requires permits for the water pollution they cause. A possible solution to the increase in costs for farmers due to a levy would be to invest the yields of the levies in the agricultural sector, e.g. using the yields to compensate farmers for performing eco-system services. With this construction the costs of the agricultural sector will, on average, not increase. Lastly, the introduction of the economic instrument of tradable water (pollution) rights is discussed. This economic instrument is legally feasible, however there are strict obligations laid down in European water related Directives which do have to be respected. The European Court of Justice does neither allow emission limits nor quality objectives as laid down in the Directives to be breached. The idea behind a market system for tradable water (pollution) rights is that when one participant breaches his emission limit (his cap) he can buy rights from a participant who did not use all his pollution rights. Since breaching emission limits is not allowed on the European level, a market system for tradable water pollution rights will not be in line with European obligations, unless a trade system is created within the boundaries of the emission limits. Introducing a system of tradable water use rights on the other hand, is possible, since the European Union does not have strict rules in place concerning water quantity. However, it is to be questioned if such a system is more efficient and more environmentally friendly that the current system of a water hierarchy. Furthermore, the costs of introducing such a system have to weigh up to the benefits of the trade system. Clearly, economic instruments are moving towards the forefront. The polluter pays principle is leading in these instruments; however, on the Dutch political level it has been determined that the polluter pays principle will not be fully applied to the agricultural sector. This naturally stands in the way of the development of economic instruments in the field of Dutch water policy. Naturally, there are more economic instruments which could be used in the field of water policy, however further research has to point out if these instruments can be used in the Netherlands while the Van der Vlies Resolution. One possibility could be the introduction of funds for water salvage by the agricultural sector. Yet, it has to be determined whether this fits within the legal framework of European and Dutch law
To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.