Tariff structures and incentives for water demand management

Abstract

Urban water managers need to adopt water demand management (WDM) as one of the ways to provide for the needs and demands of escalating urban populations, amidst the negative impacts of increased pollution loads and climate change on finite water resources. This paper reviews how urban water tariff structures could be designed to promote water conservation in households while also ensuring revenue sufficiency for the service providers and affordability for low-income households. As an example, the paper describes the case of Zaragoza (Spain), a city where implementation of a water-conserving tariff and providing economic incentives largely contributed to a 27% reduction in overall water consumption between 1996 and 2008, although the population of the city increased by 12%. Similar principles were adapted to model a water-saving, socially equitable tariff for the city of Kampala (Uganda). The proposed tariff for Kampala can save over 2·5 million m3 of water and generate an extra US$ 0·68 million of revenue per year, which could be used to extend water services to currently unserved households in low-income settlements. If implemented, the tariff could enhance economic efficiency, revenue sufficiency, social equity and service coverage.