Disproportionate Costs Under EU Water Law: The Swedish Approach to Hydropower

Abstract

Water is a vital resource that requires long-term legal protection to ensure both ecological values and societal benefits. The European Union’s Water Framework Directive (2000/60/EC) is central to this aim, establishing binding requirements for good ecological and chemical status in all water bodies and legally binding environmental quality standards. Sweden has implemented the Directive into national law; however, its application has been characterized by legal ambiguities, particularly regarding the possibility of considering disproportionate costs in environmental measures. This study examines the scope and application of the disproportionate cost criterion within the context of environmental law and hydropower regulation in Sweden. A comparative overview of the criterion’s application in other EU/EEA countries is also provided. Based on a legal approach, the analysis focuses on how these rules affect hydropower, where the goal of renewable energy production often needs to be weighed against the requirement for ecological recovery. The study concludes that applying the disproportionate costs criterion requires transparency and legal certainty to ensure a fair balance between the social benefits of hydropower and the need for long-term protection of the aquatic environments. To avoid differences in how the criterion is applied in different EU Member States, harmonized guidelines are needed.

1. Introduction

Clean water with functioning hydrological systems is a fundamental prerequisite not only for human survival but also for the health of ecosystems and the long-term sustainability of societies. Aquatic ecosystems provide essential services such as natural water purification, climate regulation, and biodiversity support [1]. Despite their importance, these environments are among the most vulnerable in Europe, facing pressures from pollution, habitat alteration, and competing land and water uses [2] (pp. 18; 28–29). Water is thus a resource that needs to be protected. Despite this, its importance as a source of renewable energy is also often emphasized; the role of hydropower as part of Europe’s strategy to combat climate change is, for example, highlighted in initiatives such as the European Green Deal and the Renewable Energy Directives (RED II [3] and III [4]). Hydropower, while an important contributor to climate mitigation, can, however, cause significant environmental impact and thus needs to be carefully controlled to be consistent with a development that is sustainable also from an ecological perspective [5,6,7,8]. Balanced governance is therefore essential to avoid disproportionate environmental degradation.

In the context of increasing environmental pressures and the urgent need for sustainable energy transitions, the regulation of hydropower operations has become a focal point of legal and policy debates across Europe. Sweden is currently undergoing a major revision of hydropower plant licenses, guided by both national legislation and EU environmental directives, including the Water Framework Directive [9] (WFD), which sets ambitious goals for the ecological status of water bodies. A central concept in this regulatory landscape is the disproportionate cost criterion, which allows for exemptions from environmental objectives when the costs of achieving them are deemed excessive. While this criterion is intended to ensure flexibility and economic feasibility, its application raises complex questions about how to balance ecological restoration with energy production, especially in systems where hydropower plays a critical role [10,11,12].

The primary aim of this study is to critically examine the scope and practical application of the disproportionate cost criterion within the context of environmental law and hydropower regulation in Sweden. Specifically, the study seeks to: (a) Clarify the conceptual boundaries of the disproportionate cost criterion: Exploring its legal definition, underlying principles, and interpretative challenges; (b) Provide a comparative overview of how the disproportionate cost criterion is interpreted and applied in different EU/EEA Member States (MS) to identify best practices, divergences, and potential lessons for Swedish implementation; and (c) Analyze the role of the criterion in the ongoing review process of hydropower plant licenses in Sweden, particularly in light of recent legislative and policy developments aimed at balancing ecological restoration with energy production. By addressing these objectives, the study aims to contribute to a more coherent and legally sound application of the disproportionate cost criterion, ensuring that it supports both environmental protection and sustainable energy policy.

The countries included in the comparative overview, Finland, Norway, France, Italy, Spain, Romania, and Germany, have been selected based on their significant reliance on hydropower as a source of renewable energy. Like Sweden, these countries host many hydropower installations, encompassing both small- and large-scale plants. This shared characteristic makes them relevant for a comparative overview, as they face similar challenges in balancing energy production with environmental protection.

The analysis reveals three main findings. Firstly, the lack of detailed criteria for interpreting disproportionality in both the WFD and EU-level guidance leaves national authorities with significant discretion, creating a risk of arbitrary decisions and inconsistent treatment of similar cases. Secondly, while the WFD requires transparency and clear justification when invoking disproportionality, it is unclear how such assessments should be conducted in practice. Most of the countries examined primarily rely on cost–benefit analysis (CBA). Thirdly, the institutional framework poses a specific challenge to individual hydropower operators because decisions made by water authorities regarding environmental quality standards (EQS) cannot be appealed. The conclusion is that the application of the disproportionate costs criterion must be transparent and legally secure for Sweden to be able to better balance the social benefits of hydropower with the need for long-term protection of the aquatic environments. Furthermore, harmonized guidelines on the EU level are needed.

2. Materials and Methods

The analysis is based on a qualitative review of the disproportionate cost criterium in the WFD. The study applies a legal method of statutory interpretation and legal reasoning. This method involves identifying and interpretation relevant legal norms by analyzing the generally recognized sources of law [13,14]. The approach primarily focuses on Swedish legislation. To identify how the concept of disproportionate costs is framed, interpreted, and justified within the legal framework, a qualitative textual analysis is conducted of relevant statutory provisions and preparatory works, which provide insight into legislative intent and the contextual framework for interpretation. For the comparative overview of how the criterion is applied in other countries, the analysis is conducted at a general level. It is based primarily on legislative texts and national guidelines that outline how environmental and energy-related assessments are carried out in the context of hydropower regulation. These sources offer a foundational understanding of each country’s legal approach without delving into case-specific applications. In addition to primary legal sources, the study incorporates secondary materials such as government reports and policy documents to help contextualize the legal frameworks and provide practical insights into how the disproportionate cost criterion is interpreted and implemented.

To access and understand legal materials from countries where the original language differs from Swedish or English, AI-translation tools like Google Translate and DeepL have been used. These tools facilitated the interpretation of foreign legal texts and guidelines, enabling a broader comparative analysis. While these translations support the general overview, limitations in precision and nuance are acknowledged, and care has been taken to cross-reference key terms and concepts where possible.

The paper is outlined as follows: Section 3 provides an overview of EU water legislation and the possibility of deviating from environmental objectives and an examinationof the disproportionate costs criterion from legal and economic perspectives, followed by a comparative overview. Furthermore, the section covers Swedish legislation on hydropower and water management, including implementing challenges. Results are discussed in Section 4 followed by conclusions in Section 5

3. Results

3.1. Supranational Environmental Governance: The EU Water Framework Directive

To protect and improve water quality, in 2000 the European Union adopted the WFD based on the principle that [w]ater is not a commercial product like any other but, rather, a heritage which must be protected, defended and treated as such (Recital 1, WFD). The Directive sets out ambitious targets, aiming to achieve good ecological and chemical status in all water bodies, and to prevent deterioration (Recital 25, WFD; Article 4(1)a(i), WFD). It promotes a unified strategy for managing water resources, ensuring the protection of entire ecosystems. This includes controlling specific pollutants and establishing legal standards. Each water body must be classified and EQS set, where the classification reflects current status of the water body and the EQS defines future targets. The approach is organized around river basin districts to encourage collaboration between neighboring countries in managing shared rivers and water bodies [15].

Balancing Environmental Ambitions and Societal Needs

Despite the high level of ambition, the WFD allows for exceptions to full compliance with the environmental objectives of the Directive. The exemptions are found in Articles 4(4)–4(7) and allow MS to deviate from the objectives set out in Article 4(1). In this paper, we focus on Article 4(5) which allow MS to focus on “less stringent environmental objectives” and Article 4(3) according to which MS may designate a body of surface water as artificial or heavily modified (HMWB). The requirements for allowing MS to strive for less stringent environmental objectives are that the water body in question is significantly affected by human activity, or that its natural state means that achieving these objectives is impossible or disproportionately costly. If these circumstances apply, MS may set less stringent objectives under Article 4(5) of the WFD. However, this possibility is subject to several conditions. First, the environmental and socioeconomic needs served by human activity cannot be met through alternative methods that offer significantly greater environmental benefits without incurring disproportionate costs. Second, the best possible ecological and chemical status must be achieved given the impact of the activity. Third, no further deterioration of the water body may occur (Article 4(5)(a–d), WFD) [16] (pp. 21–22). Regarding designations under Article 4(3), HMWBs are natural water bodies that have undergone substantial physical alterations due to human activity, such as water regulation, making it impossible to achieve good ecological status (GES) without significantly affecting their current use These changes often have a significant impact on the aquatic environment but are considered necessary from a societal perspective, Articles 2(9) and 4(3), WFD [17] (p. 25). For HMWBs, the environmental objective shifts from GES to good ecological potential (GEP) (Articles 2(23) and 4(3), WFD). A water body, e.g., used to produce hydropower may thus be designated as HMWB if the benefit resulting from the activity, i.e., the contribution to the energy system, due to disproportionate costs or technical feasibility, cannot be achieved by any other means that would constitute a better alternative for the environment.

Both Article 4(3) and 4(5) of the WFD thus serve to allow for the continuation of socially and economically valuable uses, while still requiring mitigation measures to improve water quality and ecological conditions as far as possible [18] (p. 12), but without incurring disproportionate costs. Interpreting what constitutes disproportionate is therefore essential. The WFD does, however, not specify how disproportionate costs should be interpreted or assessed. Conceptually, it involves a comparison between the costs and the benefits of achieving the environmental objectives, implying that an economic CBA is an appropriate approach [19,20]. In such analyses, the positive and negative impacts of a project or measure are expressed in monetary terms, making them more directly comparable [21] (p. 1; 44). The literal meaning of the concept is that “the costs of achieving good status/potential are out of proportion—that is to say, they are too high in comparison to a certain benchmark” [19] (p. 10).

3.2. The Concept of Disproportionate Costs: Legal Interpretation and Application

The criterion of disproportionate costs is applied in both Article 4(3) and 4(5) of the WFD (

Table 1. The disproportionate costs criterion in the WFD.

	Article 4(3)	Article 4(5)
Criterion	“[…] cannot, for reasons of […] disproportionate costs, reasonably be achieved by other means […]”	“[…] cannot be achieved by other means, […] not entailing disproportionate costs”

). It is therefore important to consider whether it should be interpreted and applied consistently, regardless of whether it concerns the designation of HMWB or the setting of less stringent environmental objectives.

The term ‘disproportionate costs’ is used in the Swedish, English, French, Spanish and German language versions, among others. Initially, in the legislative process, the term ‘prohibitively expensive’ was used, but costs were only used as grounds for exemptions from less stringent objectives [22]. In recital 31 of the WFD, the term “unreasonably expensive” is introduced in the context of setting clear criteria for when less stringent environmental objectives may be applied. Over time, the possibility of using cost considerations as a justification for exemptions has been extended to include also the designation of HMWB. Since the criterion is the same in both articles, it is reasonable to assume that it should be interpreted and applied consistently, regardless of whether it concerns HMWB or less stringent objectives. This harmonized approach is also reflected in the first EU guidance document on the implementation of the WFD, in which disproportionate costs are considered relevant in the context of both cases [23] (pp. 192–193). Furthermore, assessing whether costs are disproportionate requires a structured and transparent process, supported by established economic evaluation methods [16] (p. 13; 32). It does not suffice for the operator to perceive the cost as high [24]; it must also be deemed as disproportionate to the environmental benefits expected by the measures. Detailed guidance on how to interpret the criterion of disproportionate costs is however not offered by the WFD. As a result, its application risks being subjective and depending on national political judgment [25,26,27]. In some MS, decisions on exemptions have been based on political considerations rather than on the full application of methodological tools [28].

3.2.1. Methodological Tools for Assessing Disproportionate Costs

Economic analysis is thus required for assessing disproportionate costs. EU guidance documents recommend starting with a preliminary assessment, followed by a more detailed analysis, using a combination of suitable economic tools, though no specific method is prescribed [23], which has resulted in MS carrying out CBAs in a variety of ways [24] (app. D1). CBA is a structured analysis in which the monetary value of both benefits and costs is determined and compared. The result is a net present value that indicates whether the measure is socio-economically profitable. The fundamental principle of CBA is that only consequences that directly or indirectly affect people’s well-being should be included in the analysis. This means that both market-based effects, such as production losses, and non-market effects, such as improved water quality, recreation, and biodiversity, are considered [21] (pp. 1–2; 8–10). However, as many of these benefits are not priced in the market, they must be valued using environmental economic methods such as valuation studies, or benefit transfer [29] (p. 117).

As water management involves both monetary and non-monetary values, as well as long-term and difficult-to-measure environmental benefits, Feuillette et al. [30] argue that a multi-criteria analysis MCA is more suitable method. Klauer et al. [19] argue that CBAs should only be used in certain cases, such as when large cities, important employment issues, or major economic interests are involved, since they require a great deal of research and data. In Germany, CBA is rarely used to assess disproportionate costs, resulting in the Leipzig and New Leipzig approaches. These methods compare the costs of planned measures to benchmarks based on the average costs of similar previous measures or public water protection spending [19,31,32]. They were later developed using European databases for cross-country comparisons [25].

3.2.2. Valuation of Environmental Benefits

Assessing whether environmental measures involve disproportionate costs requires not only estimating costs but also evaluating expected benefits. This includes determining the societal value of achieving good ecological status or potential. While the costs of measures in the hydropower sector are often quantifiable, the benefits are usually indirect, lack market prices, and vary across social groups, making them both essential and methodologically challenging to assess [33] (p. 219) [34] (p. 6).

Various methods can be used to estimate environmental benefits. The revealed preference approaches are based on observable behavior, such as the willingness to pay to live near water or the costs of traveling for recreation. Such methods are considered particularly suitable for determining use-values. Use-values arise when people utilize an ecosystem directly for activities such as fishing, extracting drinking water or recreation. These values are generally easier to assess as they can be linked to observable behavior. Non-use-values refer, for example, to the value of preserving endangered species (existence values), ensuring that future generations have access to an intact natural environment (bequest values), or that environmental improvements benefit others (altruism values). These values pose more challenges for valuation than use-values [35] (pp. 194–196). Stated preference methods are based on survey studies in which individuals are asked to state how much they would be willing to pay for hypothetical environmental improvements. While these methods capture both use and non-use values, they can be sensitive to question design and response rates. Deliberative assessment stems from political sciences and involves structured discussions between relevant stakeholders, aiming to establish shared values. These methods are particularly useful when there are ethical considerations or when there is high uncertainty. Benefit transfer methods use results from previous similar studies. To be relevant, the socio-economic and ecological context must be comparable [35] (pp. 199–201; 241–242).

It is important to understand that both costs and benefits are dynamic over time which means that assessments made today may need to be reviewed in the future. This underlines the importance of evaluations being carried out in a transparent manner and based on up-to-date and continuously revised data [36].

3.2.3. When Are Costs Disproportionate? Legal and Economic Perspectives

EU guidance on HMWBs recommends that economic assessments primarily focus on financial and economic costs, while societal considerations may be relevant in certain cases. Two main approaches are proposed: one evaluates financial costs to the operator, assuming benefits remain constant across alternatives; the other compares costs and benefits, including societal gains and improved water quality. Regardless of the method used, a follow-up assessment is required to determine whether the costs are truly disproportionate. Costs are not deemed disproportionate merely because they exceed benefits. They must be significantly and demonstrably higher [18] (pp. 45–46). Since the EU has not defined universal thresholds, the assessment is context-dependent and relies on both quantitative analysis and qualitative judgment. Importantly, such evaluations should only be conducted after identifying and assessing the most cost-effective solutions [23] (p. 193; 228).

Due to varying national thresholds for determining disproportionate costs, monetary analysis alone can be considered insufficient for informed decision-making and including distributional effects and equity considerations in the assessment may be necessary [10,27]. Distributional effects examine which social groups are positively or negatively impacted by a measure. To incorporate these into a CBA, costs and benefits must be calculated for different groups, and societal preferences, such as those identified through MCA, can help determine how each group’s impact should be weighted. When quantification is not feasible, a qualitative assessment should be conducted instead. This involves identifying which groups bear the costs and which benefit from improved ecological status, ideally through consultation with local stakeholders [27].

3.2.4. Comparative Level: Different European Legal Systems

The concept of disproportionate costs gains its true significance through practical application. Rather than an abstract legal notion, it is a concrete evaluative tool, anchored in both legal and economic reasoning, that authorities must apply when designating HMWBs and allowing less stringent environmental objectives. What is deemed proportionate in one context could be considered disproportionate in another, as the assessment is inherently shaped by a range of factors including technical feasibility, economic impact, geographical conditions, and societal priorities. The contextual variation makes it interesting to examine how different countries interpret and apply the criterion, including what methods and thresholds guide their decisions. Understanding these differences can contribute to enhancing consistency, transparency and legal coherence across EU MS (

Table 2. Disproportionate costs in different EU/EEA countries.

Country	Concept	Economic Model
Sweden	Unreasonable costs	CBA and/or MCA
Finland	Disproportionate and unreasonable costs, respectively	CBA + benefit transfer
Norway	Disproportionate costs	CBA
France	Disproportionate costs	CEA followed by CBA + benefit transfer
Germany	Disproportionate costs	The New Leipzig Approach
Spain	Disproportionate costs	CBA
Romania	Disproportionate costs	CBA
Italy	Disproportionate costs	CBA

).

In Sweden, CBA is recommended as the primary method for assessing disproportionate costs when applying the exemption for less stringent environmental objectives, although it is suggested that other methods are used as a complement, such as an MCA. According to the Swedish Agency for Marine and Water Management, a clear, step-by-step CBA model should be applied, including problem description; identification of alternatives; description of consequences; monetary valuation; discounting over time; uncertainty analysis; and conclusions. The analysis must consider not only economic profitability, but also distributional aspects and the interests of future generations. This is achieved, in part, through the selection of the discount rate [37] (pp. 8–13).

Finland uses an economic analysis based on costs and benefits, when deemed necessary supplemented by a qualitative assessment related to water abstraction, tourism, and conservation values in the area. The authorities can use a specially developed assessment tool to determine whether the costs are disproportionate. This tool considers the costs of water management, but not measures related to hydrological and morphological impacts, such as restoration and fish passages. These are assessed separately for each body of water. Environmental benefits are defined, in part, by benefit transfer from previously conducted valuation studies. It is made clear that the final assessment must go beyond economics and reflect broader societal judgment. Finland advocates the use of a certain safety margin. This can be achieved by overestimating the benefits and underestimating the costs. If the costs exceed the benefits, they are deemed disproportionate. Another alternative is to use a threshold value, for example 70% [38] (pp. 24–25; 28). When comparing the different alternatives and their benefits, it is the overall environment, not just the aquatic environment, that must be considered [39] (p. 50).

In Norway, a CBA is used, and a special methodology, based on established criteria, is applied when assessing the costs and benefits of expanded hydropower. The criteria determine whether the impact of hydropower is small, medium, large or very large, depending on factors including head and water flow. To provide a basis for comparison and prioritization, a standard is used to evaluate the cost of reduced power production [40,41]. When assessing disproportionate costs, the overall benefits of a measure must be considered. Two similar measures may lead to different conclusions depending on their ecological impact. For example, minimum flow requirements and fish passages may be cost-justified in one river due to significant benefits for fish populations but deemed disproportionate in another where the ecological gains are minimal [42] (p. 16).

When assessing disproportionate costs in France, a three-step model is employed, beginning with a CBA. The analysis should exclude costs for basic measures and focus solely on supplementary measures. As it can be challenging to distinguish between the effects of basic and supplementary measures, they can both be counted as benefits, which can lead to an overestimation of benefits in relation to costs. Market benefits, such as lower purification costs, and non-market benefits, such as biodiversity, are estimated based on available data and previous valuation studies when calculating benefits. A dedicated CBA tool is used, based on specific assumptions such as discount rates and timeframes. While site-specific studies are possible, they should be limited due to their time-consuming and resource intensive nature. Benefit transfer studies have been used with the work on river basin management plans, enabling a large number of CBA analyses to be carried out. France applies a threshold value of 80%. Thus, if the benefits are less than 80% of the costs, the costs are deemed disproportionate. If the benefits exceed 80%, a second step allocates costs by sector based on the polluter pay principle. If the costs are disproportionate, alternative financing options are explored. If still disproportionate, exemptions may be granted [30,43] (pp. 6–10).

Italy applies CBA, deeming the cost disproportionate if the economic value of the environmental benefits associated with achieving good ecological status is significantly lower than the value of lost benefits resulting from the implementation of the measure [44] (art. 1; app. A). Guidance on economic analysis has been developed, but it is unclear whether it is applied in practice [28]. According to the guidance, costs should be calculated based on available historical data on water resources and an estimate of the costs of implementing measures. Next, a threshold value is defined by the relevant authority, specifying the extent to which further measures should be taken. The threshold value is then used to compare historical costs with the costs of undertaking the measures [45] (pp. 62–63).

CBA is also used in Spain, and the analysis must include a quantitative and qualitative assessment. Financial and economic costs are considered first, followed by social costs where appropriate EU guidelines on which costs and benefits to consider and how to make comparisons are referenced. To help assess the benefits, decision-makers should use various criteria and indicators that are rated according to whether they provide high, medium or low benefits. A preliminary assessment can identify cases needing further analysis, using aggregated data at an early stage. Costs are considered disproportionate if a high cost leads to a medium or low profit, or an average cost leads to a low profit [46,47,48].

Romania uses CBA and it is possible to analyze different economic sectors separately. Regardless of whether the analysis is done at sectoral level, a quantitative, transparent and relevant analysis is required. The Danube River Basin Management Plan has introduced thresholds for hydropower: If measures to achieve environmental objectives result in a reduction in hydropower production by more than two percent per year for individual power plants, and more than five percent for hydropower in the river as a whole, the costs are considered disproportionate [49] (app. No. 1a).

Less stringent environmental objectives in Germany are set according to a step-by-step model that includes an assessment of ecological impact and societal benefits, as well as a monetary or non-monetary cost–benefit comparison and an affordability assessment. Since its development, the New Leipzig Approach, mentioned in Section 3.2.1, has been used to determine whether costs are disproportionate [50,51].

The overall conclusion is that economic methods and environmental evaluations must be transparent and up to date, particularly since costs and benefits change over time. Although most countries use CBA, using different threshold values can result in similar cases being treated differently. The next section will address the Swedish implementation of the WFD and the challenges it has presented.

3.3. Swedish Legislation Governing Hydropower and Water Management

Sweden currently has around 2000 hydropower plants and roughly 600 associated dams. Most of the largest facilities are located along major rivers, where regulation is coordinated across multiple plants. Notably, about 200 of these plants are responsible for 93% of Sweden’s average annual hydropower production [52,53]. Regulations regarding water operations are found partly in the Swedish Environmental Code (SEC) and partly in the Act (1998:812) on special provisions for water activities, where the latter primarily focuses on issues of control (ownership) of the water. Water operations to produce hydroelectric power (‘hydropower plants’) are defined in Ch. 11, s. 6 of the SEC as an operation that involves water regulation, water diversion, water transfer, or other impact on water flow and is 1. intended for the production of electricity by converting the energy in flowing water, or 2. when the operation was started, was intended for such production. As a rule, most water operations require a permit, except for water operations for which “it is obvious that neither public nor private interests are harmed by the operations’ impact on the water conditions” (Ch. 11, s. 12, SEC). Hydropower plants are generally not covered by the exemption. In addition to the so-called general consideration rules (found in Ch. 2 of the SEC including requirements regarding precautions (s. 3) and resource conservation (s. 5)) that are applied in all permit assessments, water operations are subject to special conditions. These include that the operation may not be carried out in a way that makes it difficult for other activities that may in the future affect the same water resources, provided that this is possible without entailing unreasonable costs (Ch. 11, s. 7, SEC), and that anyone who carries out water operations that may harm fishing is obliged to, without compensation, for example, implement and maintain facilities necessary for the emergence and stock of fish (Ch. 11, s. 8, SEC). This obligation is only waived if the benefit of such a facility “cannot reasonably be considered to correspond to the cost” this entails for the operator. As another special condition for water activities, previous law stated that “A water operation may only be carried out if its benefits from a public and private perspective outweigh the costs, damages and inconveniences of it.” The purpose of this balancing rule was, ever since its inception in the early 20th century, to prevent water operations that are not economically justified [54] (p. 369). After the SEC came into force and the introduction of the general consideration rules, the question of whether a special balancing rule for water activities was justified was discussed in several government investigations [55,56,57] where some argued that an assessment in accordance with Ch. 2, s. 7 of the SEC (the balancing of reasonableness) was considered sufficient [56] (p. 192). In 2014, the Water Activities Investigation, after reviewing conclusions from previous investigations, concluded that the rule should be phased out [58] (pp. 213–214). A bill was presented in 2017 in which the government emphasized that the removal of the balancing rule would not entail “any change in substance for the regulation of the conditions for water operations” [59] (p. 166).

Achieving sustainable and integrated water management is complex [60] and Swedish water legislation, which is largely based on individual assessment of a water operation’s local environmental impact, was not adapted to the WFD’s adaptive management model, which has posed, and continues to pose, challenges [61,62,63,64].

Challenges in Implementing the Water Framework Directive

Following the rulings of the European Court of Justice in Cases C-461/13 (Weser) and C-346/14 (Schwarze Sulm), along with mounting pressure from the European Commission regarding Sweden’s implementation of the WFD, it became necessary to revise Swedish water legislation. The Commission’s criticism focused particularly on Sweden’s application of EQS and the existence of so-called “eternal” permits for water operations, such as those issued for hydropower plants. According to the Commission, Swedish law failed to adequately reflect the obligation to prevent deterioration in the status of water bodies when granting permits for such activities. Referring to paragraph 50 of the Weser judgment, the Commission emphasized that unless national legislation explicitly states that EQS are binding in the assessment of individual water operations, the WFD cannot be considered correctly transposed into Swedish law [65]. It was thus necessary to make changes to the Swedish water legislation. Accordingly, and based on a broad energy agreement [66], the Water Environment and Hydropower Bill was presented in April 2018 [59]. To ensure that the hydropower plants comply with the conditions that are necessary to meet the requirements of the SEC, and thereby the requirements of the WFD, the Government acknowledged that “the Swedish system needs to be arranged so that the activities [...] are assessed in accordance with the requirements of the Environmental Code” [59] (p. 79). For hydropower plants, the proposed changes included that water activities that have been established for the purpose of producing hydroelectric power must be conducted under modern environmental conditions.

The legislative amendments entered into force in 2019 and according to Ch. 11, s. 27 of the SEC modern environmental conditions mean that the permit conditions or provisions regarding the protection of human health and the environment have been laid down in a decision that is no older than 40 years. The Government does not provide an explanation as to why 40 years have been chosen as a benchmark for modern environmental conditions. However, it refers to the need for long-term predictability, particularly in investment-intensive activities, while ensuring the required environmental quality can still be achieved [59] (p. 82). Furthermore, in the Bill, the Government concluded that, since only a very small number of Swedish hydropower operations have permits with environmental conditions that meet the requirements that would result from an assessment against the provisions of the SEC, the changes in practice meant that the majority of Swedish hydropower plants would have to be re-examined to ensure compliance with modern environmental standards [59] (p. 84). However, both the energy agreement and the Bill also highlighted the important role of hydropower for the national energy system as well as for Sweden’s fulfilment of the climate goals under the Paris Agreement [59] (p. 90). The regulatory framework therefore needed to be designed to avoid imposing unnecessary administrative or financial burdens on operators, striking a balance between achieving environmental goals and minimizing obstacles to implementation [59] (p. 80).

To promote a “good balance between water environmental benefits and benefits in terms of access to the production of hydropower electricity” the need for a national holistic approach to the revision of the hydropower plants was thus highlighted in the Bill [59] (90). Accordingly, Ch. 11, s. 28 of the SEC states that there shall be a national plan for the review of hydropower plants to ensure a coordinated transition to modern environmental conditions, where both environmental benefits and efficient access to hydropower electricity are secured. In 2020, the government decided on a national plan for the revisions [67]. The plan has however been paused several times to await regulatory changes that would allow Sweden to take full advantage of the exemptions from the environmental objectives under the WFD. Sweden’s intention to apply exemptions and thereby adopt less stringent requirements under the WFD was evident already with the introduction of provisions on modern environmental conditions, one of the reasons being the desire to preserve both large- and small-scale hydropower [59] (p. 148; 176). The repeated pauses, and thus the fact that most hydropower dams in Sweden still operate under permits issued between 1918 and 1978, has led to the Commission initiating another infringement case against Sweden [68]. The revision process has been ongoing since 1 July 2025.

When the Swedish water authorities assess if costs are disproportionate and less stringent objectives may apply, a stepwise approach is used. The first step is purely qualitative, while the second step—a CBA—is not always conducted [69]. As with the Finnish approach, costs are underestimated and benefits are overestimated when assessing the disproportionate costs criterion. In Sweden, however, a cost is deemed disproportionate if it is twice as high as the benefits [70] (p. 19). The decisions on EQS are not subject to appeal. However, the Land and Environmental Courts may request an opinion from the relevant water authority if evidence in a case, such as the revision of hydropower permits, suggests that the actual water quality differs from what is reflected in the standard (Ch. 22, s. 13, SEC). In practice, this places significant responsibility on the water authorities to perform an appropriate CBA and environmental valuation study, despite the absence of clear guidelines for what constitutes a “proper” environmental valuation. Consequently, decisions regarding less stringent environmental objectives and the designation of HMWB are not merely technical or administrative, they also raise important questions about legal certainty, socio-economic priorities, and the interpretation of environmental legislation. In their water management plans for 2022–2027, the Swedish water authorities have assessed that hydroelectric power plants of great importance to Sweden’s regulating capacity cannot be replaced by other alternatives without incurring disproportionate costs. However, measures to improve the aquatic environment, such as fishways and minimum flow in water courses with hydropower plants that lack equivalent regulatory capacity, do not entail disproportionate costs, provided that the so-called HARO value is not exceeded [71,72,73,74,75].

Recent regulatory changes have introduced further guidance for Swedish water authorities, particularly concerning water stored for hydropower production. Authorities must now consider the national interest in maintaining efficient access to hydropower. This includes ensuring that the HARO value for the catchment area is not exceeded, safeguarding national electricity preparedness, and securing the regulating capacity of hydropower plants critical to Sweden’s energy supply (Ch. 4, s. 3a and 10a Ordinance (2004:660) on Water Management).

The transition to a net-zero energy system increases the value of hydropower as a stable and dispatchable renewable resource [59]. Hydropower provides essential grid-balancing services that enable the large-scale integration of variable renewables and maintain security of supply during periods of high demand or extreme weather. However, hydropower operations can substantially affect river ecosystems through altered flow regimes, disrupted sediment transport, barriers to fish migration, and reduced habitat diversity [7]. As Sweden updates hydropower permits to comply with modern environmental conditions, decision-makers must address these inherent trade-offs. From a risk management perspective, environmental regulation aims to ensure that the environmental costs and risks of different activities are adequately accounted for. Project-based environmental impact assessments are used because many impacts are site-specific, and environmental permits provide legal certainty by defining conditions for the design, construction, location, and operation of activities. These permits are guided by principles such as the precautionary principle and the requirement to apply Best Available Technology (BAT). Although tensions persist between climate mitigation objectives and the protection of aquatic ecosystems, these trade-offs are not static. The permitting system is designed to identify measures that allow both objectives to be pursued concurrently over time [76].

4. Discussion

This study examined the scope and practical application of the disproportionate cost criterion in the WFD. Our analysis suggests that the lack of detailed guidance on the EU level creates significant room for interpretation, which may undermine harmonization across MS.

Applying less stringent environmental objectives as well as designating waters as HMWB represents a deviation from the WFD’s core requirement that all water bodies achieve good ecological status. Such a decision must be based on both environmental and socio-economic considerations, guided by the criteria set out in the WFD (in Sweden, transposed into the Ordinance on Water Management). This approach seeks to balance environmental protection with the recognition that certain activities, such as hydropower, cannot be made significantly more environmentally friendly without compromising essential societal functions and incurring disproportionate costs.

The assessment of disproportionate costs raises several legal and methodological challenges. Firstly, as neither the WFD nor EU guidelines provide detailed criteria for interpretation, there is a risk of arbitrary decisions by national authorities and inconsistent treatment of similar cases. Divergent levels of environmental ambition among MS could further increase the likelihood of uneven application across the EU, for example, that different thresholds are used to determine when a cost is considered disproportionate.

Secondly, although the WFD requires transparency and clear justification, the question remains as to how disproportionality should be assessed in practice. Although most countries examined rely on CBA, alternative approaches may prove more resource-effective in practice. Regardless of the method applied, the challenge of assessing benefits remains, making the assessments both resource- and cost-intensive. The national authorities will need sufficient expertise to carry out the studies, potentially requiring external consultants. Alternatively, benefit assessments can be integrated into research projects, reducing the burden on authorities while ensuring broader applicability. Given the prevalence of hydropower in Swedish rivers, conducting individual valuation studies for each water body is impractical. Therefore, benefit transfer methods could be used, as is the case in Finland and France. However, factors such as geography, local economies, technical conditions, and social structures influence what solutions are feasible. This highlights the need for context-sensitive yet legally robust approaches.

Finally, the fact that decisions on EQS made by the Swedish water authorities cannot be appealed poses a particular challenge for individual hydropower operators. In Sweden, reviews of the EQS conducted in accordance with the order of priority outlined in the national hydropower revision plan ensure that the EQS are updated before operators apply for a review of their hydropower license. The EQS governing the conditions that operators must meet is not unique to hydropower operations; it is also the case in other sectors. However, it is debatable whether a quantitative economic proportionality assessment should be carried out at this stage, given that the decision will directly affect the licensing conditions without allowing the relevant operators to appeal against the standard if lower requirements do not apply.

In summary, unclear guidance can lead to inconsistent or overly broad use of exemptions, potentially weakening efforts to achieve good ecological status. If applied too generously, the criterion may reduce incentives to implement necessary environmental measures. At the same time, some environmental requirements may be unreasonable, particularly when they risk significant socio-economic impacts, such as on energy supply.

5. Conclusions

It is important to recognize that the derogations in the WFD serve a legitimate purpose: they allow for the consideration of socio-economic realities in water management. This flexibility is particularly relevant in contexts where human activities, such as hydropower production, are deeply integrated into societal infrastructure and energy systems, as well as being crucial in reducing greenhouse gas mitigation. However, this approach carries inherent risks from an environmental protection standpoint. If not carefully and transparently applied, it may lead to a dilution of the ecological ambitions of the WFD. While the concept of good ecological potential offers a pragmatic compromise for HMWBs, it should not become a mechanism for systematically lowering environmental standards. The same caution applies to the possibility of reducing environmental objectives from ‘good ecological status’ or ‘potential’. Such a step should only be taken under clearly justified and rigorously assessed circumstances.

A notable challenge in this context is the lack of clear criteria at the EU level for determining when a measure should be considered economically disproportionate. This ambiguity contributes to legal uncertainty and increases the risk of inconsistent application across MS. In Sweden, where hydropower plays a central role in the energy mix, the review of hydropower licenses under modern environmental requirements calls for not only technical and legal expertise but also political clarity regarding the prioritization of societal goals. The Swedish government has attempted to address this issue through legislative amendments, indicating that national access to hydropower should be considered when updating the EQS. Yet it remains unclear how Sweden will reconcile the societal benefits of hydropower with the long-term requirements of achieving good ecological status. To prevent the WFD’s environmental objectives from being weakened or its derogation mechanisms from being unevenly applied, clear, harmonized criteria at the EU level for applying the disproportionate cost criterion are called for. Establishing specific thresholds would streamline decision-making for policymakers and enhance transparency and predictability for stakeholders, including operators and environmental advocates.

In conclusion, the concept of disproportionate costs lies at the intersection of law, economics, and environmental policy. To ensure appropriate use, the concept should be applied with both sound judgment and methodological clarity. While it should not be used to avoid environmental responsibility, it must also account for legitimate socio-economic constraints. Achieving this balance requires clearer legal frameworks, guiding principles, and methodological support to enable transparent and well-founded assessments.