State-of-the-art review: designing urban water tariffs to recover costs and promote wise use

Abstract

Urban water tariffs vary substantially across cities and regions, for reasons that reflect water scarcity conditions, local or regional objectives, and political considerations. Comparisons of average water prices across regions are not generally meaningful, as the prices are not weighted or adjusted to account for variation in socio-economic or political characteristics. This study endeavours to describe the observed variation in water tariffs, with the goal of highlighting key features and the degree to which some tariff programs achieve local objectives. To this end, the domestic and non-domestic water and wastewater tariffs in 60 cities across 43 countries were examined. The non-weighted average of the per unit domestic water and wastewater bills in the cities considered was USD 2.10/m³. The average per unit bills in Asia and Africa were generally lower than those in Western Europe, North America and Australia. On average, households spend about 1.5% of their monthly incomes on water and wastewater bills. In Asia and Africa, the average unit bills for the non-domestic sector were higher than those for the domestic sector, suggesting cross-subsidy. The study also analyzed the components of a metered tariff schedule with regard to the goals of cost recovery, demand management and affordability. The article also discusses the effectiveness of existing tariffs in addressing local challenges in the context of water pricing examples from Singapore, Los Angeles and Manila.

Keywords:

• wastewater
• domestic
• non-domestic
• household income
• fixed and variable charges

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Corrigendum

Acknowledgements

The Totalizer Board and the Public Utilities Board of Singapore provided financial support for this research. We also appreciate the helpful comments of two anonymous reviewers.

Notes

This article was originally published with errors. This version has been corrected. Please see corrigendum (http://dx.doi.org/10.1080/07900627.2013.837596)

1. Applicable tariff rates as of January 2013 were used to calculate the monthly bills. In cities in which the domestic water and wastewater charges are differentiated by meter size, dwelling type, income category or household location, the tariff rate pertaining to most of the consumers was used. No taxes or income-based discounts were included in the calculations.

2. In such cases, the tariff rates for commercial facilities were generally used to calculate the monthly bills.

3. The marginal cost of supplying water is largely dependent on the capacity of large capital investments, such as dams, desalination plants and pipelines. Once this cost has been incurred, the marginal cost of supplying water is much lower than the average cost of supply. If prices are set to marginal cost, the water utility might not fully recover its costs (Cox, 2010).