Assessing the impact of full cost recovery of water services on European households

Abstract

Abstract We assess the impact of implementing the full cost recovery (FCR) principle for water services on European households. This assessment includes three dimensions. First, we measure how household water consumption reacts to the price change induced by implementing the FCR principle. Second, we provide a measure of the resulting household welfare losses. Third, we evaluate how household water affordability is impacted. This assessment which relies on a household water demand function approach has been conducted for 9 European countries (Austria, Bulgaria, Czech Republic, Estonia, France, Greece, Italy, Portugal and Spain). For most of these countries, we show that implementing the FCR principle does not lead to substantial water affordability issues. Bulgaria (and to a lesser extend Estonia and France) is one exception since poor households (i.e. households belonging to the first income decile) have to devote more than 3% of their income for paying their water and wastewater bill under a FCR regime. The fact that water affordability may become an issue under FCR for some countries gives some ground for public authorities to develop specific policies targeted to poor households.