Water: Cost

Authored by: Atif Kubursi , Matthew Agarwala

Managing Water Resources and Hydrological Systems

Print publication date:  July  2020
Online publication date:  July  2020

Print ISBN: 9781138342668
eBook ISBN: 9781003045045
Adobe ISBN:

10.1201/9781003045045-29

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Abstract

Water is a relatively scarce resource (asset), an increasingly scarce commodity and an input in relatively limited supply. Water is also the “universal solvent”; it performs many ecosystem services including the absorption, transportation, and dilution of pollutants. Water is also indispensable to the environment’s pollution abatement capacity. Economic is, however, particularly suited for dealing with it as economics is the study of how scarce resources are or should be allocated to various uses and users. Water has a value, as does any scarce resource, input or asset. This value does not emerge from competitive markets, but it can be constructed to have many of the characteristics that are associated with competitive prices. Water utilities routinely design water tariffs and prices. Their choice of the price is motivated by different considerations than pure economics. They simply choose the price at a level that would help cover their operating costs plus a capital charge in addition to several other objectives. As such, these constructed prices rarely reflect the full value of water. The generation of revenue is rarely the only purpose of a tariff, nor is it the sole consideration. Water tariffs are increasingly used as powerful management tools to balance multiple objectives including revenue sufficiency, environmental sustainability, economic efficiency, and equity.

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