Water pricing: are 'polluters' paying the environmental costs of flow regulation?

River ecosystems are severely affected by dams and reservoirs. The Water Framework Directive states that polluters should be financially responsible for the caused environmental damage. Nevertheless, the environmental costs associated to flow regulation often are not fully paid by water users. This study presents an approach to value the environmental costs of flow regulation based on the "polluter pays" principle, i.e., the amount to be paid should be proportional to the caused environmental impact. The procedure includes three major steps: (i) assessing the admissible range of regulated flow variability based on flow data during the pre-dam period, (ii) estimating the daily environmental impact of regulated flows according to the resulting hydrological change in terms of the intensity, duration and frequency of the impact, and (iii) calculating the environmental costs of flow regulation subject to spatiotemporal characteristics. This paper applies the proposed methodology in the Luna River, Spain. The advantages over other water cost valuation methodologies are discussed. The approach enlarges the current recognition of water environmental costs and represents a simple and practical management tool for achieving the objectives of the Water Framework Directive.