A modelling framework for assessing water conservation potentials through demand-based tariff structures from societal and economic perspectives

Abstract

The water resources conditions influenced by population growth, coupled with declining water availability and changes in climatic conditions underline the need for sustainable and responsive water management instruments. Supply augmentation and demand management including pricing are two main policy mechanisms generally utilised by water utilities. However, the question of pricing to change water use behaviour (demand) is a challenging process as they bring additional social and political issues into the already complex management of water resources. The complexity is characterised by many interdependent components and requires the participation of stakeholders in developing management strategies. The key factor of pricing is to calculate a price that reflects the full cost of water consumption and provide incentives for efficient wateruse behaviour, and thereby contributing to the long-term sustainable water resources management. Therefore, stakeholder involvement is crucial to determining the successes and failures of implementing pricing strategies. In the light of the above discussion, this paper presents a participatory framework for achieving greater water conservation potentials through demand-based tariff structures from societal and economic perspectives. The framework provides an appropriate modelling platform for assessing this water tariff (price)-demand-revenue nexus as it explicitly accounts for the feedbacks, interdependencies, and non-linear relations that inherently characterise such systems. Thus, in this research, a participatory System Dynamics modelling (SDM) approach was employed to explore the water demand fluctuations and revenue outcomes by introducing an inclining block tariff (IBT) to residential customers on the Gold Coast. To build the model, we have worked with a range of stakeholders from academia, experts from the water utility and a number of agencies (e.g.: Queensland Council of Social Services, Queensland Competition Authority, Gold Coast Chamber of Commerce), in order to produce a logical simulation model. The SDM tariff modelling incorporates three distinct modules to achieve the specific objectives of the study; these modules considered revenue forecasting; differentiating high and low water users; and demand feedback. The SDM results show that: a) the IBT, where the highest users pay more for using more, is an effective method for incentivising high water use customers to reduce water use through pricing rather than restrictions across the board; b) revenue neutrality can be achieved using an IBT by determining the feedback of customers to the higher cost; c) the IBT represents a successful water demand management and water conservation strategy whereby reducing household costs are an incentive for water efficiency; d) there is also an opportunity for the water utility to vary the proportion of customers that are charged the second block tariff during wet seasons (high water availability) or dry seasons (low water availability).