Externalities in the Water Sector: on the WFD' Solutions and Their Applicability to the Italian Case

The Water Framework Directive (WFD) sets an efficient and sustainable framework on water resources where the environmental objectives are the core of it; achieving a good water status should be pursued for each river basin. Thus, it is necessary to undertake analyses of the characteristics of each singular position and to evaluate the impacts of human activity, as well as economic analyses of the water usage. With respect to the environmental protection, there is a need for a greater integration of qualitative and quantitative aspects regarding both surface waters and ground waters. The WFD suggests the use of economic instruments by Member States to achieve these goals. In particular, it sets that Member States must introduce selected pricing policies by 2010. The principle of the recovery of the costs of water services, including environmental and resource costs associated with damage or negative impact on the aquatic environment, should be taken into account in accordance with the Polluter Pays Principle - PPP, also in order to internalize the environmental costs. Thus, the economic analysis of water services (contained in the river Basin Management Plans) assumes a crucial role in order to achieve the WFD sustainable goals. This paper aims at analyzing the PPP application to the Italian case, assessing the adopted criteria in the economic analysis of water services in the light to evaluate methods suggested in the current literature.