Saving water through pricing policy

As severe droughts hit many world regions, and episodes of water shortage occur also in Europe, the debate on water conservation policies has grown in urgency and geographic, sectoral and disciplinary scope.  Within the SmartH2O project, the research team investigates the potential of water pricing policies. Our research addresses the following problems: Do residential water consumers reduce water consumption significantly in response to increases in water prices? Is price elasticity more important in the presence of water scarcity events? Do symbolic prizes have a greater impact on water saving conducts than extrinsic incentives, such as prices and monetary rewards? In order to answer these questions, we make use of both meta-analyses, and new survey data collected from Swiss and Spanish urban water consumers, adopting a stated preference approach. Even though average price elasticity is low, increasing block rate tariffs are shown to be associated with higher price elasticity. Secondly, our results reveal that customers are more responsive to water prices in locations where water is scarcer. However, stricter pricing policies are not found to induce water conservation in water scarce communities if inhabitants have strong environmental concerns. Lastly, we study the willingness to save water for a sample of Swiss and Spanish water users under three alternative incentive policies: a water price increase, a monetary reward and a symbolic prize. We show that both price and monetary rewards result to be effective mechanisms in the presence of a water shortage. Conversely, the symbolic mechanism is never found to affect consumers’ habits. Based on these results, recommendations are derived for water conservation policies, and more specifically for the choice and design of demand-management instruments.