Regional Water Authority Tax - the Netherlands

The Regional Water Authorities (RWAs) in the Netherlands introduced a system of three different taxes in 2009 to cope with the complex water management challenges that the country is increasingly facing, such as floods and sea level rise. The taxes replace an earlier system and aims to fund investments in water management in a comprehensive manner, including nature-based solutions. Funded measures include, for example, the construction and maintenance dikes, embankments, ditches and ponds as well as measures to ensure that water level and quality remain in good condition. The first tax - the water systems tax - covers the costs of flood protection measures and the provisioning of sufficient and clean surface water. The waste water treatment tax relates to the cost of waste water treatment. Finally, the pollution tax has to be paid by businesses and households for direct discharges to surface waters depending on the amount of pollution. In 2017, the total estimated revenue of the three levies amounted to about €2.7 billion. The introduction of the taxes has led not only to a significant investment base for the RWAs, but has also helped to curb pollution.

Overview

Type of instrument:

Economic and fiscal instruments›Financing mechanisms /market-based instruments (e.g. taxes to generate revenue)

Challenges addressed

Water management (e.g. reuse)
Watershed restoration/water quality
Flood risk: pluvial and fluvial / soil permeability

Consideration of nature-based solutions:

Given that 30% of the Netherlands territory is below sea level and that 80% of Dutch GDP is earned in areas prone to flooding, finding appropriate flood protection measures is crucial for households, farmers and industry. The three water-related taxes provide substantial funding for the Regional Water Authorities for necessary investments, including the design and implementation of nature-based solutions. This includes the construction and maintenance of for example dikes, embankments, ditches and ponds. With RWAs as crucial actors to drive the implementation of green and blue infrastructure in the country, this instrument has huge potential to finance nature-based solutions for flood protection and water quality control. However, no exact figures exist for the revenues' share which has been dedicated to funding nature-bases solutions.

Targeted (peri-)urban areas:

Blue areas

Green areas for water management

Urban green space connected to grey infrastructure

Good practice characteristics:

Effective

Locally appropriate

Potential to be replicated / upscaled

Innovative

Policy business case

Inclusivity

Governance

Government body/bodies

Initiating body:

Regional Water Authorities in the Netherlands

Instrument design:

Details about how the instrument was designed:

In the late 1960s, environmental levies and charges were introduced by both municipalities and the Regional Water Authorities to finance local abatement policies following the ‘polluter pays principle’. The national government played a central role in the design of the new tax structure. The reform of the water tax system in 2009 is linked to the the consolidation of the water-related legal framework in 2009, with eight water laws combined into the National Water Act. Further cross-sectoral integration between spatial planning, nature conservation and water policy at the national level was achieved through the Environmental Planning Act framework that entered into force in 2019.

Involvement of non-governmental actors:

Public sector institution (e.g. school or hospital)

Type of actor involvement:

Civil society consultation through e.g. workshops, surveys

Instrument implementation:

Type of involvement:

The Regional Water Authorities Act, the dedicated legal framework for the implementation of the levies, ensures that relevant stakeholders must be part of each RWA board. Thus, stakeholder participation is a core principle of RWAs. The RWA boards includes residents, nature area and business owners as well as farmers. Generally, the involvement of stakeholders follows the "stake-pay-say" principle, i.e. stakeholders that pay a tax are represented in the governing body of the RWA. Policy implementation is performed by an executive committee that consists of a chairperson and approximately four members representing different stakeholder groups which are appointed by the board. Laws, regulations and permits to be implemented are proposed by the board and subsequently prepared and enforced by the executive committee. The RWA act also foresees participation procedures before the implementation of new regulations.

Type of non-governmental actors involved:

Citizen oversight (e.g. boards, advisory role)

Citizen monitoring and review

Financing

Funding is generated through taxes to be paid by water users

Budget:

Above 10 000 000€

Details about instrument financing:

The central government in the Netherlands as well as the provincial, municipal and regional water authorities can levy taxes. Apart from the "stake-pay-say" principle, two central principles apply. First, the 'polluter pays' principle applies aiming at ensuring full cost recovery. Second, there is a 'beneficiary pays" principle, i.e. those who benefit from regional water authority activities have to contribute financially to them. The current tax system for the Regional Water Authorities is an integrated approach that consists of three parts: The water systems levy has to be paid by owners of land (ca. 49% of the total revenue), building and home owners (ca. 39% of the total revenue), and owners of "not-built" land for agriculture and natural areas (ca. 11% of the total revenue). The waste water treatment tax obliges households and businesses to pay a fixed fee based on a "pollution unit" equaling the amount of waste substances discharges per year per entity. In 2012, the ratio of tax revenues of businesses to households was 25% to 75%. The pollution tax has to be paid by businesses and households for direct discharges to surface waters depending on the amount of pollution. The three water taxes together make up 95% of the Regional Water Authorities' budgets and are thus substantial for their operations. In addition, owners of residential and business properties also pay a sewage levy for their connection to the municipal sewage network. In 2017, the average annual water system charge for a resident owning a house worth €200,000 was €79. In addition to the generated tax revenues, the national government contributes to the budget of the Regional Water Authorities by paying construction and maintenance costs of water barriers and main waterways.

Monitoring, evaluation and impacts

Is a monitoring framework in place?:

Yes

The executive committee is monitoring the enforcement and compliance with laws and by-laws. Currently, there is a reform of the tax system underway which also aims to increase the transparency of the monitoring.

Did an evaluation take place?:

Yes

In 2009, when the Ministry of Infrastructure and the Environment implemented a reform of the water tax system, a new tax commission (in Dutch Commissie Aanpassing Belastingstelsel, CAB) was set up. The CAB is currently evaluating the Dutch tax system, including the water levies. Although representation within the Commission is mostly restricted to managers from the water sector, the Commission has created several opportunities to involve many internal and external stakeholders in its evaluation process, including business representatives, farmers and NGOs. This process will be linked to a broader evaluation of long term financing issues of sustainable water use in the Netherlands. In addition to the evaluation by the CAB, the OECD (2014) concluded that the Dutch water levy systems based on its cost recovery principle is an effective instrument. The report, however, suggested a stronger emphasis on stakeholder involvement and monitoring, which has already been taken up in a current reform of the levy system.

Achieved outcomes and impacts:

The overall revenue of the water tax system for Regional Water Authorities has risen in nominal terms from EUR 2.2 billion in 2009 to almost EUR 2.7 million in 2017. The introduction of the taxes has led to not only to a significant investment base for the Authorities to be used for flood protection measures, but has also curbed pollution. The revenue increase over the years was invested in the national flood protection program and related control measures.

Success factors and lessons learned:

Although this instrument is not solely financing nature-based solutions, the model of three tax streams based on "user pays" and "polluter pays" principles can potentially be replicated to finance nature-based solutions in other contexts. The specifics of the tax base seem to have had a strong influence on the behavior of companies in the Netherlands. Moreover, the taxes also seems to have contributed positively to innovation in the drinking water sector. The "stake-pay-say" principle of stakeholder involvement at the regional level could also be of interest for other countries. Finally, the self-financing through taxes means that the Regional Water Authorities are largely financially independent from political influences.

Sources and further information

References

List of references:

O’Donnell, Emily C., Noelwah R. Netusil, Faith K. S. Chan, Nanco J. Dolman, and Simon N. Gosling. 2021. International Perceptions of Urban Blue-Green Infrastructure: A Comparison across Four Cities. Water 13, no. 4: 544. https://doi.org/10.3390/w13040544

Havekes, H., M. Koster, W. Dekking, R. Uijterlinde, W. Wensink, and R. Walkier. 2015. Water Governance, the Dutch Water Authority Model, Unie van Waterschappen. Available at: http://www.dutchwaterauthorities.com/wp-content/uploads/2015/05/Water-Governance-The-Dutch-Water-Authority-Model1.pdf

Vollebergh, H., Dijk, J. (2016). Taxes and fees of regional water authorities in the Netherlands. PBL Netherlands Environmental Assesments Agency & Institute for European Environmental Policy. Available at: https://ieep.eu/uploads/articles/attachments/97385961-1e5d-4967-bed5-51a6e57a9cfb/NL%20Water%20Taxes%20Fees%20final.pdf?v=63680923242 (Accessed: 28 September 2022).

Business.gov.nl (2022). Regional Water Authority tax. Available at: https://business.gov.nl/regulation/water-authority-tax/ ( Accessed: 28 September 2022).

Dutch Water Authorities (2017). Water Governance: The Dutch Water Authority Model. Available at: https://dutchwaterauthorities.com/wp-content/uploads/2021/05/The-Dutch-water-authority-model.pdf (Accessed: 29 September 2022).

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