Environmental and Resource Costs Assessment and the Case for Reforming the Italian System of Water Abstraction Charges

This chapter describes the design of a reform scheme for public water abstraction charges aimed at implementing the Water Framework Directive principles of (i) internalising the externalities associated with water use (or at least recover the cost of measures implemented to protect water resources); (ii) inducing an efficient allocation among competing uses; and (iii) achieving water and environmental protection without excessively hampering economic activities. We provide a simulation of the resulting water pricing systems based on data from the Piedmont Region, in north-western Italy. The reform design grounds water charges on the impacts on ecosystem services caused both by subtracting resources to freshwater ecosystems and by returning water to ecosystems, after human use, in a qualitatively degraded state. The system takes into account that the marginal damage of water uses may also depend on the quantitative and qualitative status of the concerned water body, and controls for incidence of the resulting charges.