Is ‘fee and dividend’ a way of overcoming the Irish water crisis?

June 1st 2016

Imagine a system for funding water that doesn’t land Ireland with fines, achieves water conservation goals and actually gives money back to families that conserve it.

It’s called ‘fee and dividend’ and it works by charging people for the water they use and every year giving the amount of the average bill back to the billpayer.

This means that households who use more than the average have to pay for water and those who use less actually make money.

Today Friends of the Earth called for the Government to consider a “fee and dividend” funding model for Irish Water, claiming that unlike the current system it would be environmentally and socially progressive and be compliant with EU directives.

Speaking after the European Commission indicated that Ireland can’t just abolish water charges, Friends of the Earth Director, Oisin Coghlan said:

“There is a simple solution to the ongoing water funding farce that would be both environmentally and socially progressive and would satisfy the requirements of EU law.

“Under a ‘fee and dividend’ scheme, the cap on household charges would be removed so we would pay according to use, after our free allowances, but the water conservation grant would be increased to the level of the average bill, €400 was one initial projection.

“The incentive to conserve would be restored. If you use less water than the average you would be left with a cash dividend, if you are wasteful you would be out of pocket. And the social impact would be progressive, unlike the current flat charge, because lower income households use less water on average, so the reformed scheme would lead to a cash transfer from better off households to poorer ones.

Fee and dividend schemes are a well established concept of environmental tax reform where you are looking for a progressive, revenue-neutral method of incentivizing conservation or de-incentivizing pollution. Renowned US climate scientist James Hansen is a long-time advocate of a “carbon tax and dividend” to reduce US climate pollution.

Oisin Coghlan concluded:

“The European Commission has made it clear that Ireland can’t walk away from its obligation to have a funding model for water services that ensures good environmental outcomes for water quality. It’s imperative therefore that the Expert Commission that is soon to be established by Simon Coveney includes relevant specialists.

“At the very least the Expert Commission needs to inlcude an environmental economist and someone with knowledge of the catchment-based aspects of sustainable water management including source protection and water quality.”

Earlier this week a row broke out over claims that the European Commission will insist Ireland has to charge for water, no matter what TDs decide.

European rules say there must be charges in states where water charges are an ‘established practice’ and where ‘the polluter pays’ principle applies.

On Tuesday the Commission indicated that these rules apply – but politicians opposed to charges say the water charging system brought in here was never fully estabished and polluters were not made to pay.

The European Commission statement said: “If the established practice is to have a system in place implementing the recovery of the costs of water services, in accordance with the polluter pays principle, the Commission considers that the flexibility afforded to Member States in article 9 (4) would not apply.”

Article Nine of the Water Framework Directive of 2000 requires EU member states to implement some form of domestic charging for those who use water under the ‘polluter pays’ model.

A clause exists in article 9(4), which says that countries can decide not to impose such a system as long as it does not compromise other sections of the directive.

About the Author

Ian Carey

Ian is the editor of the Green News. He works as Communications Manger with the Irish Environmental Network.

Fee and Dividend by numbers

Household A

Three people
Fee for water used in a year: €300
Average cost per person per year: €100
Dividend paid back: €300

Cost to household A for water: €0

Household B

Three people
Fee for water used in a year: €400
Average cost per person per year: €100
Dividend paid back: €300

Cost to household B for water: €100

Household C

Three people
Fee for water used in a year: €200
Average cost per person per year: €100
Dividend paid back: €300

Household C receive: €100