Urban Water Pricing Research Articles

Urban water restrictions: Attitudes and avoidance

In most urban cities across Australia, water restrictions remain the dominant policy mechanism to restrict urban water consumption. The extensive adoption of water restrictions as a means to limit demand, over several years, means that Australian urban water prices have consistently not reflected the opportunity cost of water. Given the generally strong political support for water restrictions and the likelihood that they will persist for some time, there is value in understanding households' attitudes in this context. More specifically, identifying the welfare gains associated with avoiding urban water restrictions entirely would be a nontrivial contribution to our knowledge and offer insights into the benefits of alternative policy responses. This paper describes the results from a contingent valuation study that investigates consumers' willingness to pay to avoid urban water restrictions. Importantly, the research also investigates the influence of cognitive and exogenous dimensions on the utility gain associated with avoiding water restrictions. The results provide insights into the impact of the current policy mechanism on economic welfare.

Basic principles for urban water value assessment and price setting towards its full cost recovery – pinpointing the role of the water losses

This paper attempts to set the basic methodological framework for an integrated action plan (in terms of successive steps) to be developed that will guarantee the reliable calculation of the Full Water Cost (FWC), as defined by the WFD 2000/60/EC. Towards this goal, the crucial role of the water losses occurring in a water distribution system is demonstrated. This will help an effective and socially just water pricing policy to be developed. The cost components (direct – DC; environmental – EC; and resource – RC) comprising the FWC are analysed, introducing approaches for their reliable calculation. Regarding the DC, the marginal capacity cost and the necessary preconditions for its integration to the final water price along with its contribution towards effective water demand reduction are analysed. Regarding the EC, its dynamic character and the ways it interacts with the DC are presented. The role of the stakeholders in setting those price levels is also checked. Crucial parameters are analysed for a socially just water cost allocation to domestic users. The role of the water utility is examined, considering its responsibility in water losses. The basic policies (market-based vs. conventional) used to achieve conservative water use are evaluated. In addition, the role of the State is criticized.

Urban Water Supply Industry Marketization of China in View of Public Water Service and Water Resource Management

Abstract Started with the discussions on the value orientation of urban water supply industry marketization, the article points out that the current urban water supply industry marketization reform is inconsistent with the goal of public water service equalization to some extent. The article also analyzes the problems emerged in urban water supply industry marketization reform and various reasons in view of efficiency and fairness. An efficiency and fairness oriented management model is built in this article to illustrate how the government should conciliate interests of various communities involved in the process of marketization reform of the urban water supply industry so as to actualize the coordination of efficiency and fairness. At the end, an assumption on urban water price is put forward to help achieve the public water service equalization.

Urban water management: optimal price and investment policy under climate variability*

Australian urban water utilities face a significant challenge in designing appropriate demand management and supply augmentation policies in the presence of significant water scarcity and climate variability. This article considers the design of optimal demand management and supply augmentation policies for urban water. In particular, scarcity pricing is considered as a potential alternative to the predominant demand management policy of water restrictions. A stochastic dynamic programming model of an urban water market is developed based on data from the ACT region. Given a specification of the demand and supply for urban water state dependent optimal price and investment policies are estimated. The results illustrate how the optimal urban water price varies inversely with the prevailing storage level and how the optimal timing of investment differs significantly between rain dependent and rain independent augmentation options.

Hydro-economic analysis of water supply for the binational transboundary region of Baja California, Mexico

The northern border of Baja California hosts prominent agriculture and fast-growing cities under an extreme-arid climate. This paper provides an economic-engineering analysis of water supply alternatives to cope with agricultural, environmental and urban water needs projected to year 2025. Analysed alternatives include idealised water markets, wastewater reuse, seawater desalination and infrastructural expansions. Network flow optimisation using CALVIN (CALifornia Value Integrated Network) was employed. A database of the water system was built to include hydrology; agricultural, environmental and urban demands infrastructure, and economic information on operating costs and economic value of water. For the coastal cities, results show that wastewater reuse along with other already projected infrastructure expansions is overall the most economically promising alternative. Water markets offer leverage and flexibility for future urban needs. However, some locations cannot take advantage of domestic water markets with current aqueduct capacities. Worthwhile investments in infrastructure include an expanded aqueduct connecting coast and inland water supply systems. Furthermore, at current urban water prices and operating costs, seawater desalination is uneconomical for Baja California. Computer models are useful to better understand water-related issues in a region and provide a technical basis for developing and comparing long-term water management solutions.

Efficiency, equity, and sustainability in a water quantity–quality optimization model in the Rio Grande basin

Integrated hydrologic and economic optimization models at the basin scale provide a framework for policy design, implementation, and evaluation in water-stressed basins. Despite the considerable potential that basin scale analysis offers, few basin-wide studies have examined tradeoffs among efficiency, equity, and sustainability when analyzing the design of water resource programs. This paper develops a basin scale framework to identify hydrologic and economic impacts of alternative water pricing programs that comply with environmental regulations for protecting water quality. Key issues are examined that confront integrated hydroeconomic basin models: linking water and economics, spatial and temporal scale integration, and quantity–quality relationships. Economic efficiency is defined and measured for each of two urban water pricing arrangements that comply with urban water quality protection regulations. Alternative measures of equity are analyzed in both spatial and temporal dimensions. Sustainability is evaluated physically for protecting the water supply and financially for long-term revenue viability. The approach is illustrated from results of a dynamic nonlinear programming optimization model of water use in North America's Rio Grande basin. The model optimizes the net present value of the basin's total economic benefits subject to constraints on equity, sustainability, hydrology, and institutions. It is applied to assess impacts of a two-tiered pricing program that complies with recently implemented drinking water quality standards for the basin's two largest U.S. cities: Albuquerque, New Mexico, and El Paso, Texas. Results suggest that two-tiered pricing of urban water supply has considerable potential to perform well in meeting the aims of efficiency, equity, and sustainability. Findings provide a general framework for designing water pricing programs that comply with environmental regulations.

Analysing the Diversity of Water Pricing Structures: The Case of France

This paper presents the results of a 2003 national survey of urban water pricing structure implemented by 429 district level water utilities. After providing some background elements on the diversity of existing water pricing structures, the paper shows how each structure can be used to achieve different management objectives (water allocation efficiency, costs recovery, and equity). It then describes the structures adopted by French water utilities, showing that flat rate are rarely adopted; declining blocks frequently used; and increasing blocks pricing which should be used to promote water use efficiency remain extremely rare. A statistical clustering is then conducted and a typology of situations elaborated. The paper concludes with highlighting that current pricing structures are influenced by past practices and that the dominant objective of water utilities is to cover costs.

Urban Water Policy: In Need of Economics

he thesis of this article is that Australian urban water supply and pricing policies are not well grounded in rational economic thinking. It questions the policy consensus that water is necessarily so scarce in Australia as to require the sorts of penal charges, water restrictions and use regulations which are being imposed or being considered for imposition upon urban users. It also questions the policy consensus on vetoing new dams for urban water supply, a consensus from which Queensland is partly defecting. (Rural water use is a separate story, though it seems that policy failures there have been used to justify the punishment of urban water users.) This article does not question the function of the price system nor does it suggest capital for water infrastructure is a free good, but it does argue that the current ‘water policy consensus’ which involves deliberate non-augmentation of supply, discriminatory pricing, rationing and the creation and exploitation of monopoly rents by treasuries is hardly an economic optimum. The thesis is illustrated by pointing out apparent logical problems with Australian Capital Territory (ACT) water supply and pricing policies. The ACT’s policies are more or less paralleled by other jurisdictions and its urban water prices have been driven higher than most. It is therefore a representative example of an increasingly dominant policy consensus. At the outset, one readily acknowledges that when a resource is genuinely scarce, rising prices do serve to ration demand. However, although Australia is a dry continent, it has a relatively small population and a wide variety of regional climates. Water is not necessarily scarce in North Queensland, for example, and a policy which forbids Cairns from building a second dam when six times the volume of the existing dam flows over its spillway in the wet season may be quite irrational. Few Australians live in areas with very low rainfall.

Urban Water Pricing

Urban Water Pricing

Urban water use conservation measures

This paper presents details of residential water use conservation techniques. Its main goal is to present, as clearly as possible, the operational measures that are included in an integrated residential water use conservation programme that is implemented in a rapidly developing area under water shortage conditions. The implementation steps and results of an urban water pricing policy programme adopted in Athens, the capital of Greece, are presented to verify the programme's practicality and effectiveness.

Urban water pricing and drought management

In periods of drought, urban water systems commonly rely on nonmarket programs to induce temporary conservation, leaving the marginal price of water unchanged; an alternative is to raise the price. Using pooled cross‐sectional and time series observations on single‐family residential customers of the Honolulu Board of Water Supply (1982), demand for water is estimated as a function of price, income, household size, rainfall, and a dummy variable denoting a water restrictions program. Short‐run elasticities suggest that an increase in marginal price of less than 40% would achieve a 10% reduction in water use, even during a drought episode. An accompanying conservation program would mitigate the necessary price increase, but only slightly.

Household Water Expenditures in Major Metropolitan Centres in Canada: 1969–1982

A survey of urban-water pricing and management arrangements in the major metropolitan centres of Canada is undertaken for the purpose of identifying dominant themes regarding Canadian urban-water supply and disposal. Residential water prices are compared among 12 cities, using the index of household water expenditure. Significant variations exist among cities regarding household water expenditure and the methods by which residential water charges are calculated and billed. Above all, the discussion establishes and promotes the concept of Canadian urban-water supply and disposal as a theoretical, economic, and mechanical entity that merits constant review at a micro and national level.

AN OPTIMIZATION MODEL FOR EFFICIENT MANAGEMENT OF URBAN WATER RESOURCES1

ABSTRACT: A mathematical programming model is proposed to determine economically efficient urban water resource allocation and pricing policy by maximizing the sum of the consumer and producer surplus. The optimization of this nonlinear problem is accomplished by the use of linear programming algorithm. The feasibility of using recycled water for municipal purposes is examined in a planning context. The impact of higher water quality discharge standards on pricing and allocation of water is analyzed and the attractiveness of water reuse option is demonstrated.

Milliman on Urban Water Price and Tax Policy*

Milliman on Urban Water Price and Tax Policy*