Water pricing: not just a Chinese puzzle

Nobody likes price increases particularly during a period of global austerity. However we at Waterstink do believe the historically very low cost of water has to be addressed if there is going to be a drive to address lingering problems around water conservation and individual users’ frugality. (Interestingly the recent Defra/Welsh Assembly Independent Walker Review of Charging and Metering for Water and Sewerage Services, which gave its final report last month, takes a very similar view of the need to better incentivise efficient water use through pricing measures.)

To explore this issue further for a moment, it’s quite possible to look at the costs paid by householders in two very different parts of the world – albeit both with strident economies and water shortage – say, for this example, China (in particular, Beijing) and California (Los Angeles). Both cities and their populations also have to balance household water use with competing demands from agriculture and industry.

In China, the difficult political problem of raising the cost of water has recently been addressed (as reported in The Economist, 7 January 2010). Last November Beijing’s authorities put up the price for commercial water use by nearly 50%. This was followed last December by an 8% increase in residential potable water prices – their first increase since 2004 – as a prelude to a 24% increase by 2013.

The background to these increases is a prolonged period of drought and a continuing increase in water demand. Beijing has partially tried to improve its severe drought problem by ‘stealing’ water from its neighbouring Hebei province (once again as reported in The Economist, 9 October 2008). Many might say that this is history repeating itself. After all the developers of Los Angeles stole water from the surrounding region to allow the development of the city during the twentieth century.

Another interesting aspect of the price rise by the Beijing authorities is that since 80% of homes there use less than 10 cubic metres a month, the 24% price rise by 2013 would currently only represent an increase of 1.32 USD per month. The present monthly cost there for consumers, up to 5.50 USD for a family, is clearly a highly subsidised one. Therefore it seems unlikely that any increases – even on this double-digit scale – will incentivise much of an increase in water frugality by consumers – something that must be desirable given their present water-stressed situation.

However – given China’s one child policy – we can take the average family unit to be three (although of course we must remember that the Chinese often share living space with other family members) then this 10 cubic metres a month per household comes down to a very reasonable maximum use of 100 litres per person per day (and could be less in instances of undocumented sharing). This water consumption level therefore in fact compares rather well in terms of frugality to elsewhere in the world. Figures for urban Europe are over 150 litres per person per day. In North America this can easily be over 280 litres. Nevertheless one real concern is that even this rather frugal level of use in China – in the absence of some form of restriction – is bound to rise. It has been shown repeatedly that increased potable water use is proportional to increased prosperity.

If we now look at California, Governor Arnold Schwarzenegger has declared that the State is suffering from a severe drought and that householders should expect water rationing. The numbers may be different from those in China but the same conclusion can be drawn: Water is being given away too cheaply and water pricing is not being used to address a real need for increased frugality.

According to David Zetland, in an article in Forbes Magazine (14 July 2008, ‘The water shortage myth‘) a typical household in Los Angeles pays around 2.80 USD for its first 885 US gallons a day (that’s approximately 3,200 litres) then for twice this amount they pay 20% more (around 3.40 USD). This is given that the average household of three people uses around 350 gallons (1,320 litres) per day. For that amount of water, the household pays only 35 USD a month. If they use twice that monthly amount, their monthly bill merely doubles. Clearly this pricing doesn’t help water conservation! In fact, quite the contrary…

David Zetland both in this Forbes article and regularly on his Aguanomics blog has been extremely vocal in advocating the use of pricing to reduce demand. To quote him:

I propose a system where every person gets the first 75 gallons, or 1.5 bathtubs, per day for free but pays $5.60 for each 75 gallons after that. Under my system, the monthly bill for the average household of three would come to $95. My system is designed to reduce demand rather than cover costs. Revenue paid by guzzlers would cover the costs of those who use only a small amount of water. Any leftover profits could be refunded to consumers or used to enhance the quality or quantity of the water supply.

We at Waterstink strongly support this view, since voluntary requests to conserve simply don’t work when the price placed on water by the community is so low. It would appear that fear by governments to use differential pricing to help to bring about fair conservation drivers is a global problem with its roots in historically minimal pricing – and of course related to the unique role of water in sustaining life.

The advent of cost-effective ‘smart’ metering should assist in the development of such pricing policies (something also indicated in the above mentioned Walker Review). Such approaches should be seen as a crucial part of global fight to better conserve and share the world’s water.

Update (15/11/2016): Featured image added from this source.

Roger Ford

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