Water Conservation through Water Pricing

Environment Probe

December 1, 1992

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Canada’s image, both domestic and foreign, is that of a country of endless lakes and rivers. A perception of unlimited abundance is reflected in Canadians’ water consumption, which amounts to approximately 350 litres a day per capita, or more than twice that of many western Europeans. To a large extent, however, the superabundance of water is exaggerated. Much of the water in Canada is geographically inaccessible, available at inappropriate times, or polluted. This problem is more intense in certain regions, including southern Ontario, where water shortages are becoming commonplace.
Excessive water use damages the environment. Water treatment introduces chlorine – a chemical dangerous to life forms – into receiving waters. Treating, pumping, and heating water consumes enormous amounts of energy. And in many municipalities, high water consumption leads to stormwater overflow. In Metro Toronto, stormwater overflow results in the contamination of Lake Ontario with untreated bacterial waste. Fresh water, like any other resource, has only a limited ability to regenerate itself.
Pricing that reflects supply and demand is the most equitable and effective way to reduce water use. Increased water rates discourage wasteful consumption and reward conservation. Studies conducted both in Canada and abroad indicate that water demand is fairly “elastic”: Customers respond to price increases with a proportionate reduction in consumption. This is especially true of large-scale “luxury” uses such as car washing, lawn watering and the filling of swimming pools. Water pricing models function best when coupled with demand-reducing mechanisms such as the use of rain barrels, low-flow plumbing fixtures, and xeriscaping (sustainable gardening with plants that require little or no watering), which, in providing means of reducing water use, increase the elasticity of water.
An effective pricing program aimed at the reduction of excessive water use is contingent on several factors. First, full-scale metering must be implemented. Second, the “true value” of water must be determined and incorporated into its cost price. Third, an effective system of public education is vital.
Water and Wastewater Metering
The first step towards an effective water conservation program that makes use of pricing mechanisms is the implementation of full-scale water metering to determine exactly how much each consumer is taxing the system. The installation of water meters has long resulted in more careful water use.
While some communities have seen their water use slowly begin to rise after a sharp drop in consumption during the first few years of metering, others have succeeded in further reducing initial conservation levels. There is no doubt, however, that metering is, generally speaking, a highly effective measure in reducing water consumption. The Organization for Economic Co-operation and Development, for example, found substantial reductions in water consumption following the implementation of metering in municipal jurisdictions worldwide: Gothenberg, Sweden, 33%; Philadelphia, USA, 45%; Moss City, Norway, 41%; Toowoomba, Australia, 41%; and Copenhagen, Denmark, 20%. Another study comparing the Alberta cities of Calgary and Edmonton found that Calgary, which is only partially metered, consumes twice as much water as fully metered Edmonton.
Despite the benefits, the City of Toronto’s residential sector remains largely unmetered. The situation elsewhere in Metro Toronto is imperfect, since most municipalities do not individually meter each apartment or condominium unit, thus eliminating any incentive to reduce water consumption among tenants.
The City of Toronto bases its wastewater distribution and treatment charges on its customers’ water bills, with two resulting problems. First, a water bill does not necessarily reflect the quantity of wastewater that a consumer sends into the sewer system. The use of wastewater flow meters, which some countries, including France, have been using for years, would correct this problem. Wastewater meters would provide an incentive to reduce the amount of wastewater returned to the system. Second, Toronto’s billing scheme fails to account for wastewater strength. Cleaner wastewater producers effectively subsidize producers of industrial wastewater that requires more power, chemicals, and time in sewage treatment plants. In addition to being inequitable, such a system decreases consumers’ incentives to improve wastewater quality.
The Price of Water
Metro Toronto currently sells water wholesale to its local municipalities, which in turn transfer the costs of water and wastewater services to their customers. Many critics argue that the price of water should go beyond the mere cost of its distribution and purification, and should reflect costs of supply and demand that are applied to other resources.
The true cost of water may be calculated in one of several ways. One option is to price water more closely to alternative products. Another favoured model for calculating the cost of water is to determine its “marginal” cost. Under marginal cost pricing, the price of water reflects the cost of supplying the next increment of water – the replacement cost. Marginal cost pricing may be linked to peak water flows: if the cost of supplying the next increment of water goes up during excessive consumption periods such as the summer, a higher marginal price should be charged. In this way, marginal cost pricing provides consumers with an accurate sense of the real value of water.
Full-cost pricing would increase some consumers’ water bills. It should be remembered, however, that the construction of bigger treatment plants to accommodate extra water demands also costs consumers millions of dollars. The price is all too often hidden in indirect taxes, and paid regardless of water use. Under a full-cost pricing system, the water conserver saves. Moreover, the small user does not, either directly or indirectly, subsidize the larger user. Once such cross-subsidies have been eliminated, the cost of water may well be comparable or lower than it currently is for the average water consumer.
What You Can Do
At your business:
  • Contact the Ontario Ministry of Natural Resources’ Water Efficiency Division, which has information on wastewater recirculation technologies being used by industries across North America.
  • Consult Workplace Guide: Practical Action for the Environment, a guide for organizations of all types and sizes that wish to assess their workplace operations and introduce environmentally sensitive strategies. The 170-page text is available for $37.45 from: Harmony Foundation, P.O. Box 3444, Station D Laurier Ave. W., Ottawa, Ontario KIP 6P9
In your home:
  • If your home does not have a water meter, ask your local municipality to install one.
  • Xeriscape: Design your garden to make watering unnecessary or to greatly reduce the need for sprinkling.
  • Purchase low-flow, easily installed showerheads, faucet aerators and toilet dams from your local hardware store.
  • Obtain information on water conservation techniques for the kitchen, the laundry room and the garden. Write to the Enquiry Centre, Environment Canada, Ottawa, K1A 0H3, or call 1-800-668-6767. Or contact the Ontario Ministry of Natural Resources.
  • Get involved politically: many water resource management decisions are subject to environ­mental assessments (EAs). Call the Ontario Ministry of the Environment’s Environmental Assessment Branch for information about EAs, and check your newspaper for announce­ments of public meetings to attend – where you can make your voice heard.

Further Reading
TATE, D.M. Water Demand Management in Canada: A State-of-the-Art Review, Social Science Series No. 23, Inland Waters Directorate, Ottawa, Canada, 1990.
BROOKS, D.B. “Pricing, A Neglected Tool for Managing Water Demand,” Alternatives, Vol. 17, No. 3, 1990, pp. 40-48.
POSTEL, Sandra. Water: Rethinking Management in an Age of Scarcity, Worldwatch Paper # 62, 1984.

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