Urban Water Pricing Research Articles

Spatiotemporal Variability and Impact Factors of Domestic Water Prices in China

Given China’s status as one of the most water-scarce countries globally, its rapid development of urbanization and sustained economic growth have led to increasing pressure on the urban water supply. Water pricing is also receiving increasing attention as an important tool for water resource management. This study analyzes the spatial and temporal characteristics of domestic water prices in China and their drivers. To this end, domestic water price data from 285 cities in China were collected. Spatial statistical analysis and geodetector were used to examine the spatial distribution and temporal patterns of domestic water prices from 2007 to 2020, as well as to identify the primary factors influencing these prices. The following results are noted: (1) The national average domestic water price has increased from 2 RMB/m3 to 3.12 RMB/m3, where the northeast and eastern regions have higher prices than the national average, while the central and western regions have lower prices. (2) The spatial distribution of urban domestic water prices presents clear differences characteristic of north–south and spatial agglomeration effects; the high-value area of domestic water prices is mainly concentrated in Beijing–Tianjin–Hebei. (3) On a national and regional scale, the price of domestic water is closely related to economic development, water resources, and resident’s income level. Furthermore, this study revealed that the interaction between pairwise factors played a more significant role in influencing domestic water prices compared with the individual impact of each factor. This finding contributes to a deeper understanding of the spatiotemporal heterogeneity in domestic water pricing and offers valuable insights and guidance for water pricing reform in China.

Role and impact of urban water prices on the management of groundwater consumption due to Covid-19 outbreaks

The main objective of this study is to investigate the environmental role and impact of urban water prices, and hence its consumption in Tehran on its groundwater level drawdown. The issue gets vital in times of drought when the scarcity value of water exceeds benefits of groundwater environmental flow. Hence, the argument is that urban water tariffs may play a role in managing groundwater flow.In this regard, the harmful impact of urban water consumption on the environmental flow of groundwater resources is distinguished. Then the objective would be to identify determinants of urban water consumption. To do so, an urban water's demand function, including important key regressors such as price, income, temperature, and rainfall is estimated. Moreover, the role of Covid-19 in urban water consumption is highlighted.Results show a demand elasticity of −0.29 ± 0.1 for urban water consumption, or that a 10 percent increase in average price results in a decline in urban water consumption of 1.9–3.9 percent. In addition, one percent lower urban water consumption causes 1.3 ± 0.1 percent less groundwater extraction, or that response of a 10 percent decrease in the consumption could cause a decline in groundwater extraction of 12–14 percent. Last but not least, a 1 percent decrease in underground extraction for urban water raises 13.2 ± 6.7 cm of GRACE water level after three months.The results show that groundwater exploitation for urban drinking water is a responsible contributor to the water level drawdown in Tehran. In addition, the significant elasticity of 0.29 shows that price mechanisms are useful to manage hydrological scarcity and the consequent disasters. Moreover, observing significant effects of covid-related determinants for calming down the upward trend of groundwater extraction, we alert for post-covid deterioration of subsidence areas due to regrowth of water consumption.

Role of Urban Water Pricing in Groundwater Depletion: Lessons from Covid-19 Outbreak in Tehran

Role of Urban Water Pricing in Groundwater Depletion: Lessons from Covid-19 Outbreak in Tehran

Urban Water Pricing and Private Interests’ Lobbying in Small Rural Communities

It is difficult for small municipalities to ensure their urban water cycle complies with the principle of cost recovery established in the European Union (EU) Water Framework Directive. Unlike more populous municipalities, small municipalities face higher average production costs. However, at least in Spain, the price of water is, on average, lower in small municipalities. We question whether the low price of water in rural areas is due, at least in part, to people linked to agriculture, i.e., do farmers constitute a special interest group that hinders increases in the price of water? The main hypothesis was tested with data taken from Torre-Cardela, a municipality in southern Spain with close to 800 inhabitants. In the research a contingent valuation analysis was carried out to analyze respondents’ willingness to pay in the event of a hypothetical increase in the price of water to help cover the service costs. Contrary to expectations, the study yields no evidence that the agricultural population is more resistant to price rises than the rest of the citizens surveyed. In fact, results show that people involved in the agricultural sector would be willing to accept a hypothetical increase in water tariffs in between 15% and 25% over the current tariff, while for the rest of the population this same increase would be lower (in between 9% and 20%).

Electoral opportunism and water pricing with incomplete transfer of control rights

ABSTRACT One of the forms of intervention in public services that lie beyond market forces is price control. While such regulation is justified by the need to achieve social goals, empirical evidence has shown that it is often used by politicians for electoral gain. This paper looks for evidence of opportunistic political behaviour in urban water pricing. Using data for 119 large Spanish cities covering the period 1998–2015, we find strong empirical evidence of the influence of the electoral cycle on water pricing insofar as price increases are significantly lower in the years immediately preceding municipal elections than in non-pre-election years. Furthermore, outsourcing water service provision does not mitigate the relationship between the electoral cycle and water pricing. This result could be explained by incomplete transfer of control rights when the urban water service is outsourced, which allows politicians to use their right to supervise water tariffs to their advantage.

Reply to Comment by Swtizer and Teodoro on “U.S. Urban Water Prices: Cheaper When Drier”

Key Points The Palmer Drought Severity Index (PDSI) is not an appropriate measure of water scarcity Using our preferred metric, we find that water rates, both in terms of total bills and marginal prices, are cheaper where water is scarcer Switzer and Teodoro have misinterpreted our Key Point 3; average prices can decline while marginal prices increase with greater water use

Comment on “U.S. Urban Water Prices: Cheaper When Drier” by Ian H. Luby, Stephen Polasky, and Deborah L. Swackhamer

AbstractIn a recent article in this journal, Luby, Polasky, and Swackhamer come to the provocative conclusion that urban water prices in the United States are “cheaper when drier.” They also argue that utilities fail to provide affordable water and that they charge less for “additional” use compared to “essential” use. We challenge these claims. While the authors correctly point out the many challenges that utilities face in supplying affordable water while meeting conservation and revenue goals, there are serious flaws in their measures of price, scarcity, and affordability. These measurement problems lead the authors to incorrect conclusions about water pricing in the United States. Using improved measures of price and water scarcity, we find little statistical relationship between the marginal price of water/sewer services and scarcity. Our findings cast doubt on Luby et al.'s findings and point to important avenues for future research.

A Pricing Model for Groundwater Rights in Ningxia, China Based on the Fuzzy Mathematical Model.

To reduce groundwater overexploitation and alleviate water shortages, market mechanisms are introduced to allocate water rights. Scientific and reasonable pricing of groundwater rights is key to ensuring the effectiveness of the groundwater market. Because of the complexity and uncertainty of water resources, this study calculates the price of groundwater rights based on the value of water resources with an evaluation indicator system. The system includes 14 indicators developed with a fuzzy mathematics model addressing three dimensions: environment, society, and economy. The weights of the indicators are determined through the analytic network process (ANP) and the entropy method. The results show that the price of groundwater rights in Ningxia, China increased from 5.11 yuan/m3 to 5.73 yuan/m3 between 2013 and 2017; this means the price was basically stable, with a slight increase. The ratio of residents’ water fee expenditures to real disposable income also remained essentially stable, fluctuating around 0.37%, far below the normal level. These data demonstrated that the current regional water price policy does not reflect the true value of groundwater resources; there is room to increase urban water prices. Local governments need speed up water price system reforms and adopt water rights systems to optimize water resource allocations.

Comparative Scorecard Assessment of Urban Water Pricing Policies—The Case of Jordan and Iran

Urban water pricing is becoming increasingly important due to the rapid rate of urbanization and the expansion of water reclamation and reuse. The mounting evidence of failures of current pricing schemes makes analyzing their performance essential for understanding the adequacy of economic and sustainability policies in water management. However, urban water pricing policies are complex, serve multiple objectives, and vary widely across regions and countries. This paper presents an assessment framework for urban water pricing policies based on common conditions advocated for well-functioning pricing policies. Using a simplified scorecard, it compares the performance of urban water pricing policies in Jordan and Iran, two countries under growing scarcity pressure. Both countries show serious deficiencies with regard to the economic valuation of water services and the cost recovery of utilities. Public policies are rather oriented towards access and affordability, with Jordan showing a higher level of transparency and competition in tariff-setting. The assessment tool indicates a high potential for experience-sharing in future reforms, which should promote water as a scarce good. Such reforms need to prioritize full cost valuation, participation, and scientifically based designs of local and regional water tariffs.

Policy Note: "Short-term Pain for Long-term Gain: Urban Water Pricing and the Risk-adjusted User Cost"

The paper introduces the concept of the risk-adjusted user cost (RAUC) and its application to the volumetric price charged to water consumers. It is a risk premium that would be incorporated into and be a component of a dynamic pricing framework. The benefit of the RAUC is that it allows decision-makers to inter-temporally maximize social welfare when the future water supply is uncertain. The RAUC imposes higher volumetric prices today to promote water conservation and, thus, mitigate the possibility of future water restrictions. An application of how the RAUC can be estimated is provided based on data from the Australian Capital Territory, Australia. Key policy implications in relation to the RAUC and dynamic water pricing are also presented.

Using Meteorological Data to Adjust Water-Pricing of Urban Resident Households

In this paper, a dynamic method is presented for setting the price of urban residential water. Using a model called Seasonal Water Pricing (SWP); urban residential water pricing was set by taking into account the fact that some of the characteristics of temperature and precipitation may also influence residential water supply levels. In this work, an SWP model was adopted and used to estimate correction coefficients for urban residential water prices. The adjusted cost of water was < 3% of the disposable per capita income of customers. Thus, this work offers a basis for reforming water resource pricing in China.

Identification of urban drinking water supply patterns across 627 cities in China based on supervised and unsupervised statistical learning

Urbanization, one of the predominant trends of the 21st century, places great stress on urban water supply networks. This paper aimed to identify the most important variables driving urban water supply patterns in China, a region which has seen rapid urban growth in the last few decades. In addition, a principal component analysis-informed urban water sustainability index was developed in order to benchmark cities. The research involved applying statistical learning and other analytical methods to 12 years of urban water supply data for 627 cities across China. The findings were as follows: (1) PCA showed that approximately 46.8% of variability in the data could be explained by two principal components. Component 1 (37.26%) was more closely associated with variables related to water supply and sale, supply pipelines, and water supply finance. C2 (9.51%) was clearly related to urban water prices and average per capita water use. (2) Random forest and XGBoost algorithms were effective in classifying cities according to their region, with model testing accuracies of 87.69% and 88.32% respectively. (3) Chinese cities have consistently suffered water loss/leakage rates above 20% since 2001, and water prices are closely associated with leakage. (4) China's urban water sustainability has increased by just 3.56% between 2001 and 2013; Southwest China saw the highest growth rate in urban water supply sustainability. The implications of our research effort will be useful for decision makers in water-stressed urban areas around the world who are seeking novel insights in how to leverage statistical learning techniques to gain insights into urban drinking water supply patterns.

Domestic urban water rate structure and water prices in Mallorca, Balearic Islands

Water rate structures were analysed to assess water prices per unit of water consumed in the domestic urban sector. Water prices and variability are set in spatial context and patterns are analysed on the background of municipal urban and tourist profiles. In addition, scenario calculations reveal that the block rate is not sufficiently progressive and prices are too low, in particular where low density housing with lawns and swimming pools dominates. Finally, we look at the institutional framework for establishing water prices and for managing water resources more sustainably.

Have Chinese water pricing reforms reduced urban residential water demand?

AbstractChina continues to deal with severe levels of water scarcity and water pollution. To help address this situation, the Chinese central government initiated urban water pricing reforms in 2002 that emphasized the adoption of increasing block rate (IBR) price structures in place of existing uniform rate structures. By combining urban water use records with microlevel data from the Chinese Urban Household Survey, this research investigates the effectiveness of this national policy reform. Specifically, we compare household water consumption in 28 cities that adopted IBR pricing structures during 2002–2009, with that of 110 cities that had not yet done so. Based on difference‐in‐differences models, our results show that the policy reform reduced annual residential water demand by 3–4% in the short run and 5% in the longer run. These relatively modest reductions are consistent with the generous nature of the IBR pricing structures that Chinese cities have typically chosen to implement. Our results imply that more efforts are needed to address China's persistent urban water scarcity challenges.

Urban water pricing in Yemen: a comparison of increasing block tariffs to other pricing schemes

ABSTRACTThis study examines the viability of increasing block tariffs (IBTs) to achieve the right balance between efficiency, financial requirements and equity, and compares them to alternative pricing schemes. Using numerical examples, it analyzes the IBT structure of two water utilities in Yemen. The main conclusion is that IBTs exhibit remnants of old thinking among policy makers to promote cheap water for people. In view of similar results from other regions, the current practice of IBTs in developing countries has significant deficiencies and could be replaced by simpler pricing schemes such as a uniform price with a rebate or a discount.

Urban water pricing in Chile: cost recovery, affordability, and water conservation

To address water scarcity issues, policymakers are increasingly considering pricing as an important tool. However, implementing tariff reforms is often difficult in practice due to political factors and the absence of governance structures that can result in quality service provision. Additionally, institutional replication of successful water pricing policies has been difficult due to incomplete information and the contextual uniqueness of local institutions, politics, and social relations. The case study reported here seeks to fill this gap by analyzing Chile's water supply and sanitation (WSS) regulatory framework and evaluating its performance. We show that Chile's policy of providing WSS services through privatized regional and local water companies has been a notable success, but faces new challenges. Thus, Chile's urban water pricing regulation represents an interesting case study for countries that are analyzing their water and sanitation regulation. WIREs Water 2017, 4:e1194. doi: 10.1002/wat2.1194This article is categorized under: Engineering Water &gt; Planning Water Human Water &gt; Value of Water

Urban domestic water pricing in India and China

Despite significant differences in political and administrative structures, recent reforms in urban domestic water tariff regimes in India and China have had similar trajectories with important but sometimes nuanced differences. In both countries, there has been a devolution of operational authority to municipal governments and acceptance of greater reliance on cost recovery through user fees. Reflecting this, there is considerable variation within each country in water tariffs, with cities in more water-short areas charging more than those with relatively abundant and accessible water resources. At the same time, authority over tariff setting remains largely outside the domain of the water agencies, and is highly political. One reflection of this is the infrequent adjustment of tariffs in both countries.

Water scarcity and affordability in urban water pricing: A case study of Chile

Water demand management is one of the main issues in the water policy agenda. The objective of this work is to design a water rate model that internalizes the scarcity value of water and at the same time improves social concerns such as equity and affordability. The proposed water rate focuses on the variable component of the tariff and follows an increasing block strategy. An empirical application is developed for two Chilean regions. This application illustrates that the implementation of the proposed water rate creates incentives to improve water use sustainability and equity among users.

A financial economic model for urban water pricing in Brazil

This paper presents a financial economic model to analyse key topics of urban water pricing and economic regulation. Because institutions play a central role in the regulation process, it evaluates some institutional forms of drinking water utility: non-regulated state-owned monopoly, state-owned monopoly regulated by cost of service and by the Vogelsang-Finsinger pricing rule. In the scope of the Brazilian water utility (highly heterogeneous urban residential demand, investment financed by monopoly's capital, and increasing block tariff), the main conclusion shows that the institutional form most employed in Brazil (cost of service) presents the lowest efficiency and equity indicators, suggesting the necessity for revision of Brazilian water economic regulation.

Measuring the performance of water service providers in urban India: implications for managing water utilities

This study assesses the efficiency of the urban water supply system in 27 selected Indian cities. It applies data envelopment analysis (DEA) as an analytical tool to measure technical efficiency. Cities are categorized into different groups according to the management structure of their water utilities. The results show that within groups, the utilities that are managed by ‘municipal corporations (MCs) and parastatals', with a certain amount of functional autonomy, perform better in comparison to the group ‘MCs and government’ and thus, strengthen the hypothesis that functional autonomy in management leads to better performance of the water utilities. Moreover, the results also have implications for urban domestic water pricing. We find that most water utilities are operating under decreasing returns to scale (DRS), implying that water should be priced at a marginal cost of supply.