Europe’s water systems are under growing pressure from droughts, floods, pollution and scarcity, and the economic consequences are already being felt across agriculture, industry, ecosystems and communities. Addressing these challenges requires more than technical fixes: it demands innovative governance and the right economic tools, properly designed and combined.

The WaterGovernance2027 synergy group,bringing together three Horizon Europe research projects, InnWater, GOVAQUA and RETOUCH NEXUS, has published its second Joint Policy Brief. Building on the first brief, which highlighted innovative governance practices for water resilience, this second edition goes a step further by focusing on economic tools and how they can support water resilience in alignment with the EU Water Resilience Strategy (EWRS).

The brief presents a structured economic toolbox, covering price-based instruments, subsidies and Payments for Environmental Services, trading schemes, risk-management instruments, shared implementation arrangements, and blended finance, and highlights the essential role of economic and Water-Energy-Food-Ecosystems (WEFE) nexus modelling to support policymakers in designing, testing and implementing effective measures.

Innovative governance is an enabler for effective economic instruments.

Economic tools require clear regulatory frameworks, transparency, robust monitoring and stakeholder trust to avoid negative externalities and to support long-term water resilience objectives. Governance is not a backdrop to economic instruments, it is the foundation that makes them work.

A diversified economic toolbox is needed to balance efficiency, equity and resilience.

Price-based instruments, incentives, risk-management tools and cooperative arrangements should be combined and adapted to local and basin-level contexts. Explicit attention to affordability, access and water quality is essential to ensure that no one is left behind.

Economic and WEFE-nexus modelling supports informed and legitimate decision-making.

Integrated, data-driven modelling, co-designed with stakeholders including authorities, utilities, farmers, NGOs and citizens, helps assess trade-offs, distributional impacts and economy-wide effects. This strengthens both policy design and implementation, and builds the shared understanding needed for lasting change.