The paradox of water pricing: dichotomies, dilemmas, and decisions

Abstract

We deliver a public policy perspective on the dichotomies, dilemmas, and decisions of water pricing. First, the dichotomies between price and value, and costs, are defined to explain the paradox of water pricing: the price of water almost never equals its value and rarely covers its cost. Second, the dilemmas of water pricing are highlighted across efficiency and equity, objectives for water pricing, and the instruments available to decision-makers. Third, the challenges of decision-making are evaluated and illustrated in relation to water pricing. Fourth, an adaptive process is provided that includes participatory assessment of risks and options to guide water-pricing decision-making.

Protecting health in dry cities: considerations for policy makers

“…Finally, policy on water tariffs and pricing is highly contested and political. Some argue that it brings market discipline to a typically underpriced commodity, whereas others maintain that it disadvantages poorer people and makes a commodity of something better viewed as a human right 9697…”

Decentralized Water and Wastewater Systems for Resilient Societies: A Shift Towards a Green Infrastructure-Based Alternate Economy

“…Essentially, the water itself is ascribed no or little value (effectively free), and yet unlike other resources, a single water molecule contributes multiple functions and benefits to human and ecological systems with no value-adding processing required. While developing countries have been moving towards pricing reform and "internalizing" the full marginal costs (including environment costs) into decisions that affect water use and water quality over a decade or more, this has not translated into real change as yet (de Azevedo and Baltar 2007;Grafton et al 2020;Productivity Commission 2017). This is the case in Australia where the water supply to major urban areas is provided by state-or local government-owned water utilities and the management of the network is conducted by a single authority (e.g., Water Corporation in Western Australia) or by separate authorities (as is the case in Melbourne and Sydney).…”

“…However, water accounting rarely considers lost value (or opportunity costs) or externalities in pricing structures. The price of water almost never equals its value and rarely covers its costs (Grafton et al 2020).…”

A Hydro-Economic Methodology for the Food-Energy-Water Nexus: Valuation and Optimization of Water Resources

“…In many cases, prices for water are subsidized, resulting in the end user paying less than supply and distribution costs (Convery, 2013). Such policies have led to inefficiencies in both how water is consumed overall and how it is allocated across different water using sectors (Grafton et al, 2020). Further, government policies targeting the agricultural or energy sectors-for example, subsidized energy for agricultural production that is used to pump groundwater for irrigation-can also exacerbate water allocation concerns (Scott & Shah, 2004).…”

“…In addition, both central governments and local water utilities are paying increasing attention to incentive-based approaches and methods for pricing water. In these applications, the price for water should reflect an optimal allocation across alternative uses to maximize the economic benefits of water consumption (Grafton et al, 2020). Proper economic valuation of water resources can, however, be technically challenging and can require large amounts of physical and socioeconomic data (Alamanos et al, 2019).…”