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Article 5 of the WFD requires Member States to undertake an economic analysis of water uses according to the specifications of Annex III. Article 13 and Annex VII required Member States to send summary reports of the analyses required under Article 5 and Annex II as part of the first RBMP.

Annex III of the WFD stipulates that the economic analysis of water uses should contain enough information in sufficient detail (taking account of the costs associated with collection of relevant data) in order to:

• Make the relevant calculations necessary for taking into account the principle of recovery of the costs of water services under Article 9, taking into account long term forecasts of supply and demand for water in the RBD and where necessary:
• Make estimates of the volume, prices and costs associated with water services.
• Make estimates of the relevant investment including forecasts of such investments.
• Make judgments about the most cost-effective combination of measures with respect to water uses to be included in the PoMs under Article 11, based on estimates of the potential costs of such measures.

The WFD is the first EU environmental policy that explicitly integrates economic principles (e.g. polluter-pays-principle), economic tools and methods (e.g. cost-effectiveness analysis), and economic instruments (e.g. environmental charges and taxes) into a piece of EU water legislation. This is based on the understanding that economic principles and instruments are potentially important tools in managing the pressures that affect Europe’s waters.

Article 9 of the WFD sets out three general concepts that are closely related but not equivalent, each one imposing specific requirements on economics in general and water pricing schemes specifically:

• Incentive pricing deals with the way water users pay for their use and whether the right price signals are transmitted, i.e. it addresses the question how water is being paid for and how the water price affects the behaviour of water users.
• The polluter-pays-principle establishes how environmental costs should be covered among economic agents, i.e. it considers the adequacy of contributions from different agents based on their role in causing these costs.
• Cost recovery establishes the overall amount that users are charged for water services. The WFD foresees an adequate degree of recovery, not only to the financial costs for the provision of a water service but also of the costs of associated negative environmental effects (environmental costs) as well as forgone opportunities of alternative water uses (resource costs).

The scope of the definition of water services is not fixed, but reflects the activities which result in significant pressures to water bodies in individual Member States. It should be clear that, for the purpose of reporting, Member States are expected to report on that basis and, for those activities which are not subject to cost recovery, a justification should be reported on the basis of Article 9(4). This is in line with the general Union principle of transparency embodied in the Directive via public information and consultation (Article 14) and the need to justify derogations from general rules, while at the same time respecting Member States' margin of discretion in relation to setting programmes of measures under Article 11.