Disentangling Water Usage in the European Union: A Decomposition Analysis

The Water Framework Directive defines common objectives for water resources throughout the European Union (EU). Given this general approach to water preservation and water policy, the objective of this paper is to analyse whether common patterns of water consumption exist within Europe. In particular, our study uses two methods to reveal the reasons behind sectoral water use in all EU countries. The first method is based on an accounting indicator that calculates the water intensity of an economy as the sum of sectoral water intensities. The second method is a subsystem input-output model that divides total water use into different income channels within the production system. The application uses data from the year 2005 on water consumption in the production system of the 27 countries of the EU. From our analysis it emerges that EU countries are characterized by very different patterns of water consumption. Mediterranean and central/eastern European countries use water mainly for agriculture whereas northern European countries use it mainly for electricity, gas and water supply. In most countries, the water used by the fuel, power and water sector is consumed to satisfy domestic final demand. However, our analysis shows that for some countries exports from this sector are an important driver of water consumption. Focusing on the agricultural sector, the decomposition analysis suggests that water usage in Mediterranean countries is mainly driven by final demand for, and exports of, agricultural products, whereas domestic final demand is the main driver of water consumption in central/eastern European countries. Given these heterogeneous water consumption patterns, our analysis suggests that Mediterranean and central/eastern European countries should adopt specific water policies if water consumption in the European Union is to be efficient.