An analysis of the price escalation of non-linear water tariffs for domestic uses in Spain

Abstract

Efficient and sustainable water resource use and management is becoming increasingly important, especially in regions under water stress. The use of increasing block pricing involving an escalation or progressivity of unit prices in tariff systems is an economic instrument that contributes to achieving this objective. More progressive tariffs are expected to contribute to a better allocation of resources and avoid their wastage. This article analyses the determinants of the price escalation of water supply tariffs in Spain, a country subject to a high water stress throughout most of its territory. The main objective is to discern whether differences in the degree of progressivity in the tariffs are explained fully by climatic and scarcity factors or are, instead, disproportionately affected by political and business criteria. Data from 967 municipalities are analysed using conditional mixed process (CMP) modelling. Among the obtained results, we find that tariff escalation is influenced by factors related to the environment in which the service is supplied, as well as by factors related to the decision makers’ own strategic choices.