Adapting water tariffs to climate change: Linking resource availability, costs, demand, and tariff design flexibility

Abstract

Abstract Utilities face challenges that may cause net damage costs able to defy our society and environment. An ever more frequent impact is water resource scarcity due to an increasingly uncertain climate, overexploitation and contamination of resources, as well as lack of infrastructure. Thus, in the water supply sector, the robustness and resilience of systems depends on ‘preparedness’ measures able to establish a link between resources availability, utility costs, water tariffs (or other sources of revenue) and demand. In this study, the interplay regarding the instability of environmental phenomena, water supply and demand management is established to model tariffs in a novel flexible framework. The social, economic and environmental impacts are assessed related to costs, demand, and water resources availability. The Sao Paulo metropolitan area (Brazil) case-study is assessed, particularly the Cantareira reservoir system. Water supply tariffs and operational adjustments are proposed on an ‘ex-ante time frame’. By providing a rationale to price changes related to resource variability (e.g., scarcity-related) the often reliance on heuristics or simplified decision-making models is avoided. The results achieved highlight that water supply tariffs can be planned according to climatic and hydrologic information, utility costs, water demand, rational and flexible tariff design, to avoid unnecessary constraints on utilities, allowing to defer investment requirements. Benefits accrued to customers are: reductions from 10% to 44% in lower consumption levels (usually connected to high-value uses) and, when in resource scarcity situations, increases in higher consumption blocks from 3% to 106%.