Water Pricing Policies Research Articles

Does water utilities' ownership matter in water pricing policy? An analysis of endogenous and environmental determinants of water tariffs in Italy

Owing to the growing importance of efficient water management, it has become crucial to understand water utilities' characteristics and the environmental factors affecting water pricing, so as to provide guidance to policy-makers. The analysis of factors influencing water tariffs is a challenging task in a context in which companies providing the service are characterized by different ownership features. Moreover, environmental factors and companies' characteristics may simultaneously influence both the decision to privatize the service and the water tariff level. Using a treatment effects model, where privatization is considered as an endogenous binary treatment variable, this paper analyzes whether and how certain relevant variables affect the tariffs levied by water utilities in Italy. The results show that higher tariffs are set in order to cover a greater amount of investments; furthermore, abundant water availability, measured by the average annual rainfall, significantly reduces prices. The data surprisingly show that tariffs are higher where the income level is lower. Significantly, after accounting for the endogeneity due to the fact that water firms are not randomly distributed between totally publicly or not totally publicly owned, our results seem to suggest that ownership does not influence the tariffs levied by water utilities.

Supply-based dynamic Ramsey pricing: Avoiding water shortages

In many countries, current water-pricing policies are dictated by the sole objective of financial breaking even. This results in large withdrawals, which are not sustainable in the long run, hence not optimal. In this paper, we derive the optimal dynamic pricing policy, which targets efficient distribution while breaking even through a rebate scheme. Using data from Turkey, we estimate the demand for water by user groups. We carry out simulations to compare the effects of the current and optimal pricing policies on the frequency and severity of shortages. We find that, under the policy of break-even prices, the supplier runs into a shortage every 8 years. In contrast, if the prices were to set optimally, shortages would be practically nonexistent over the next century.

Virtual water and input–output framework: an alternative method for assessing trade and water consumption in FYR Macedonia

This study analyzed direct and indirect relationships in water consumption by Macedonian economic sectors using virtual water in an input–output framework. Macedonia was found to be characterized by intensive water consumption, with some sectors having a significant virtual water content in their products. Virtual water multipliers were used to analyze the trade balance and determine whether national commercial trade strategies are in line with Heckscher–Ohlin (HO) theory. It was found that Macedonia trade strategies in terms of virtual water were generally in line with HO theory. However, as a consequence of significant exports and high virtual water content in vegetables, fruit, grapes and sheep and goat products within the agriculture sector and in food and basic metal products in the manufacturing sector, the region was a net exporter of virtual water, losing about 124 million m3 of water at 2005 level or 18% of total water consumption. Reducing exports of the most water-intensive products with significant net positive exports would result in substantial water savings of 42% of total water consumption. The results presented here can help policy makers in promoting production specializations that are more environmentally sustainable or in redesigning existing water pricing policies at national level to encourage rational use of water.

Comparative advantages of conservation agriculture based rice–wheat rotation systems under water and salt dynamics typical for the irrigated arid drylands in Central Asia

In Central Asia, the increasing water shortage and labor scarcity, high cost of production, increasing secondary soil salinization, and land abandonment are compelling farmers to change to water saving irrigation and conservation agriculture (CA) technologies. Such CA practices aim at maximizing profits while making a better use of soil and water resources lowering labor demands, farm power and production costs. The CA experiments with rice–wheat systems combined two establishment methods (beds and flats) with three residue levels (all zero tillage) and with alternate wet and dry (AWD) irrigation followed by surface seeded wheat (SSW); and conventional tillage (dry tillage) and continuously flooded rice (water seeded rice, WSR) followed by SSW. These were evaluated for 2 years (2008–2010) by using several financial indicators such as gross margins (GMs) estimates and benefit/cost ratio (BCR) while accounting for the soil water balance and soil salinity dynamics. The GM and BCR were higher under WSR–SSW than under treatments of dry seeded rice (DSR)–SSW. Both were higher under residue removal compared to residue retainments in DSR-SSW. Surface seeded wheat, which involved minor production costs, yielded >6tha−1 in both years in all treatments. Furthermore, >80% of the total irrigation water was applied to rice. Yet, >90% from WSR–SSW and ∼67% from DSR–SSW were lost through seepage and percolation. Dry seeded rice in bed (DSRB)–SSW saved 15% more irrigation water compared to dry seeded rice in flat (DSRF)–SSW and 67% compared to WSR–SSW. Soil salinity decreased with rice cultivation. After 2 years, WSR–SSW had the lowest while residue-removed DSRB–SSW had the highest salinity level at all soil depths. Groundwater salinity under deep groundwater tables was higher under treatments of DSR–SSW than under WSR–SSW. However, under shallow groundwater tables, groundwater salinity was higher under WSR–SSW than under DSR–SSW. Under the conditions that irrigation water is subsidized or even free of charge, conventional WSR–SSW into the standing rice field (20 days before rice harvest) is the most profitable option. However, under water scarce conditions, the CA based rice–wheat system could be a suitable alternative to cope with water scarcity and secondary soil salinization. Before this crop production system can be advocated and promoted, it needs to be flanked by adequate water pricing policies.

Price elasticity of residential water demand in California

This study used meta-analysis to assess the influence of price/price structures on residential water demand in two selected urban areas in California: East Los Angeles and South San Francisco. Monthly usage data for the years 2002–2011 were utilized to determine and compare price elasticities for periods when uniform and tiered rates were charged using fixed effects panel regression and Instrumental Variable methods. Price elasticities in East Los Angeles and South San Francisco were −0.39 and −0.22 under uniform rates and −0.44 and 0.43 under tiered rates, respectively. When customers in each city were divided into three groups based upon their lot sizes, those with larger lot sizes tended to react to pricing systems more strongly than those living on smaller lots. These findings will be helpful for water demand stakeholders and policymakers seeking to design and implement more effective water pricing policies to support sustainable water conservation efforts.

Domestic water pricing in Greece: a spatial differentiation

This study investigates the differentiation of the water pricing policies applied by the Greek Municipal Water Utilities (GMWU) in several regions. GMWU are being characterized by individual management framework with a lack of a uniform pricing policy and a significant diversification of the payable amount by region. The export of comparative conclusions regarding the overall pricing policy in Greece, both at GMWU level (a sample of 84 GMWU) and at regional level, is the basic objective of this study. The comparison analysis was performed on a monthly consumption basis of 5–150 m3, for the year 2007, per water utility population served (five groups) and per administrative region (13 regions). The mean net consumption cost and the mean payable amount are calculated for a monthly consumption, because water utilities do not use the same billing period. Fee for construction and sewer user fees are excluded. Maintenance water meter cost and maintenance projects (fixed charges) charges are also partly included. The study revealed that there is a large spatial differentiation of water prices on regional level.

Towards sustainable irrigated Mediterranean agriculture: implications for water conservation in semi-arid environments

Water scarcity is a threat to food production systems, with appropriate water management being a major part of the solution. From the adoption of the European Water Framework Directive to the latest proposals for the Common Agricultural Policy Horizon 2020, the strategic lines for establishing a balance between agriculture and water resources in the European Union have been defined, including an emphasis on water pricing. This paper discusses the situation of irrigated agriculture in semi-arid areas such as southern Spain in terms of water scarcity, highlighting the main advantages and disadvantages of water-pricing policies as a solution to more sustainable irrigation management.

Basic Principles of a DSS Tool Developed to Prioritize NRW Reduction Measures in Water Pipe Networks

Non-revenue water (NRW) in urban water distribution networks is a very demanding task to handle. NRW impacts are economic (lost revenues), environmental (water and energy losses) and social (inefficient water pricing policies not based on the actual water consumption profile/patterns). To deal with NRW, water utilities turn to water audit tools and water loss control methods. In this context, WATERLOSS project (2G-MED09-445) designed a Decision support system (DSS) tool to help water utilities reduce NRW, applying the most cost effective NRW reduction measure(s). The present paper presents the architecture of the DSS tool developed to classify and evaluate NRW control methods available (conventional and proposed ones). The DSS platform includes the DSS tool, which: (a) proposes a list of prioritized NRW reduction measures; (b) evaluates the network’s performance variables and indicators; (c) compares and benchmarks water distribution networks performances; (d) manages the registry of NRW reduction measures; and (e) induces the measures prioritized for any specific system.

Smart Metering, Water Pricing and Social Media to Stimulate Residential Water Efficiency: Opportunities for the SmartH2O Project

Abstract The SmartH2O project aims to provide water utilities, municipalities and citizens with an ICT enabled platform to design, develop and implement better water management policies using innovative metering, social media and pricing mechanisms. This project has as a working hypothesis that high data quality obtained from smart meters and communicable through social media and other forms of interaction could be used to design and implement innovative and effective water pricing policies. Planned case studies in the UK and Switzerland are introduced. We anticipate that SmartH20 research outcomes will be of use to those interested in linking smart metering, social media and smart pricing approaches to achieve more sustainable water management outcomes.

Equity tension and new public management policy development and implementation in the water industry

Purpose– Within the new public management (NPM) context, this paper aims to examine the inclusion of equity issues in pricing policy development and implementation in the water industry in Australia.Design/methodology/approach– A review of literature relevant to the pricing of water shows equity issues have four dimensions which tend to be, at best, only implicitly considered. An empirical illustration employing a transaction cost framework is provided of a case in which change in pricing mechanisms was strongly suggested.Findings– An equity paradox emerges as an explanation of why 63.7 per cent of Queensland urban water entities chose not to adopt the user-pays pricing mechanism for water. This suggests that the balance between “equity” and “efficiency” continues to be required in policy development for water pricing. Equity of access and that of distribution continue to be significant factors. As well, equity of interest and of return must be considered, especially under a user-pays pricing mechanism.Practical implications– In respect of NPM considerations, it is argued that consideration of the four dimensions of equity in the implementation of a water pricing policy will resolve contradictions with, and paradoxes met in dealing with efficiency.Originality/value– The argument used in the paper is interdisciplinary. References and terms used include those which are social, economic, and environmental from an accounting and management perspective.

Endogenous and Environmental Determinants of Water Pricing Policy in Italy

A water pricing policy (WPP) should accomplish many purposes. Due to the growing importance of efficient water management, it has become crucial to understand the endogenous and environmental factors affecting water pricing, so as to provide guidance to policy makers in defining a suitable water management framework and in entrusting the service to those water utilities that are better inclined to fulfill the purposes of the WPP. Using multiple linear regression model with robust standard errors, this paper analyzes if and how some relevant variables affect the tariff levied by water utilities. Italy is considered a particularly appropriate case study, since the country characterized by diverse geographical features and is home to water utilities with differing characteristics. The results show a positive relationship between the tariff level and the realized investment per inhabitant. Furthermore, the paper shows a negative relationship between the tariff level and the average annual rainfall. Consistent with the environmental characteristics, the data show that tariffs are lowest in the north of Italy. Significantly, publicly owned companies levy lower tariffs than mixed and private utilities. Finally, neither firm size and diversification strategies show a significant relationship with the tariff level.

Irrigation water pricing policy for water demand and environmental management: a case study in the Weihe River basin

Irrigated agricultural production is the backbone of the Chinese agricultural sector, but the increasing demand for irrigation water, its inefficient utilization and overuse of chemical inputs, accompanied by the short supply of water resources have endangered the nation's agricultural and environmental sustainability. The Chinese government has proposed a water pricing policy with the expectation of improving the efficiency of utilizing irrigation water and fertilizer, to mitigate these problems. With the main objective of this paper being to assess the impact of this policy on water demand and environmental sustainability, a positive mathematical programming model was adopted to simulate different irrigation water pricing scenarios based on farm-level primary data from three irrigation districts along the Weihe River basin. The main parameter for assessing water demand was the change in total water consumption relative to the base year, while change in fertilizer consumption and water demand was determined to evaluate the impact of pricing policy on environment sustainability. According to the results, irrigation water demand and fertilizer consumption were mostly price inelastic to water pricing. This implies that water pricing policy can have only a minor role in regulating the water demand and environment in the region even when the base-year water price is doubled.

Assessment of Irrigation Pricing Policies: A Data Envelopment Analysis Approach

The European Water Framework Directive encourages pricing policy reforms in order to protect the environmental quality of water and promote its efficient use. This paper deals with two aspects of efficiency, namely economic and environmental efficiency, analyzed for different pricing methods. Volumetric pricing methods are compared with other indirect schemes (‘per area’, on ‘input’, on ‘output’ and ‘quota’) under three different water saving scenarios. The Data Envelopment Analysis (DEA) technique is used to assess the eco-efficiency of an eventual water pricing reform in the irrigated agricultural system of Capitanata, in Italy. Overall, findings point out that a pricing system based on ‘per area’ and ‘output’ will lead to the highest eco-efficiency, although this is not valid under any water pricing charge. The enforcement of water saving via pricing does not imply a higher eco-efficiency, mainly in the case of environmental efficiency. The use of the DEA approach appears useful in the assessment of water pricing policies where conflictive economic and environmental goals arise. It provides a methodology to support policy makers in the design of water policy pricing aimed at the enhancement of efficiency, both economic and environmental.

Perceptions of Water Pricing during a Drought: A Case Study from South Australia

This paper examines the perceptions of urban and regional water consumers in three areas of South Australia on the fairness of the water pricing system, the impact of increases in water pricing on households and pricing as a driver of water conservation. The study was conducted in 2009 during a time of severe drought and mandatory water restrictions. The results did not show a general aversion to all aspects of price increases but rather different sectors of the population were particularly resistant to different, specific aspects of water pricing. A state-wide water pricing policy in South Australia means that all consumers pay the same rate per volume of water consumed regardless of their location; yet in the regional study area, where it costs more for the service provider to supply the water, the respondents had stronger feelings that the price of water should be higher in places where it costs more to supply it. Generally, low income earners were less in favor of a block pricing system than higher income earners. The latter findings indicate a common lack of awareness around various aspects of water pricing. Some implications of the findings for water managers are outlined.

Cost Recovery and Water Pricing in Water Services and Water Uses in Germany

Article 9 of the Water Framework Directive requires Member States to take account of the cost recovery principle with regard to “water services” and to provide, by water pricing policies, adequate economic incentives for an efficient and environmentally sound water usage. This contribution exposes the interpretation and implementation of Article 9 WFD in Germany. It shows that a stringent cost recovery approach is applied to classic water supply and that an incentivizing pricing instrument is implemented by most German States in the form of a water abstraction levy. However, this levy is not applied in all Stats and those applying it are making considerable exemptions for important water using industries. It is concluded that this is barely in line with Article 9 WFD.

The value of water as an urban club good: A matching approach to community-provided lakes

Community-provided urban lakes located in arid environments provide significant amenities to residents but require large quantities of water to maintain lake levels. We use matching techniques to recover the average capitalized value of lakes above the costs of maintenance by comparing transactions in lake communities to observationally similar transactions in surrounding communities. We differentiate between adjacent and non-adjacent houses to recover heterogeneous treatment effects and allow estimates to vary across communities. Importantly, we consider the role of imperfect matching on spatially and temporally varying unobservable variables in our choice of estimator and the appropriate set of potential control properties. Our results suggest that the capitalized value of lakes is heterogeneous with a mean estimate of $6500 an acre-foot. Our results provide estimates of the changes in water prices that would make this form of development unprofitable, illustrating the linkage between water pricing policy and the water intensity of development.

El uso sostenible del agua en núcleos urbanos: las tarifas como herramienta de control del consumo

The Water Framework Directive requires the adoption of a tariff system that recovers the costs of water resources and the establishment of national water-pricing policies that help to achieve a sustainable water use. Water rates (tariffs) should be used as an auxiliary tool for consumption control, seeking for efficiency and a sustainable resource use. In this research, we studied the characteristics of the existing rates in seven Spanish cities, analyzing the behavior of consumption of domestic water during the period 2003-2010, in order to check whether the current Spanish rates conforms to the state of resources and the objectives of the Directive. The main conclusion of our work is that the current system has lost its effectiveness as a control consumption tool, making it necessary to rethink the pricing policy and a new tariff system in Spain.

Recovering the Costs of Water Services in the People’s Republic of China: Lessons from Article 9 of the European Union Water Framework Directive

The cost recovery of water services is becoming known as an important element for water management internationally. The Water Framework Directive is a leading document in implementing these economic instruments in the European Union and it is also a good framework to refer to when the People's Republic of China reforms its water price policies and its recovery of the costs of water services. By providing a comparative study of the backgrounds and contents of costs recovery between Article 9 of the Water Framework Directive and the water management-related systems in the People's Republic of China, this article aims to look for some legal solutions in the European framework that can be useful for the water management of the People's Republic of China.

Evaluating the impact of demand-side management on water resources under changing climatic conditions and increasing population

This study investigated the effect of increasing population and changing climatic conditions on the water resources of a semi-arid region, the Las Vegas Valley (LVV) in southern Nevada. A system dynamics model was developed for the LVV from 1989 to 2035. The impact of climate change on water demand and the water supply from the Colorado River was modeled, using projections from 16 global climate models for 3 emission scenarios. Variability in water demand and supply under different scenarios of population growth and demand management, including water conservation and water pricing, was evaluated. With the population growth that was projected, if no further demand management policies were implemented, the LVV would not be able to meet the water demand in the near future. However, by combining water conservation and pricing policies, the available supply could last well into the future. The reduction in water demand in 2035 was predicted to be 327 million cubic meters (MCM) for ‘status quo’ population growth, or 30.6%; 408 MCM for 50% of the projected growth, or 38%; and 511 MCM for no population growth, or 47.8%. Water supply reliability decreased significantly with changing climatic conditions. Therefore, major challenges to water sustainability in the LVV would be due to rapid population growth as well as to climate variability. However, with the combination of reduced population growth rate and water conservation policies, the Colorado River supply could meet the future demand of the LVV most of the time.

An Econometric Analysis of Residential Water Demand in Cyprus

This paper analyses econometrically residential water demand in the three major urban areas of Cyprus, a semi-arid country with medium to high income levels. Water demand turns out to be inelastic, but not insensitive, to prices; price elasticity is less than unity in absolute terms, but significantly different from zero. The analysis further shows that periodic interruptions in household water supply, which were applied as an urgent water saving measure in 2008–2009, did not encourage water conservation among the population. The paper discusses these results, pointing at the need for appropriate water pricing policies and long-term planning in order to move towards sustainable water resource management.