Transcript - UNDP-ALM
Water Demand Modeling Emanuele Massetti FEEM and CMCC Prepared for the Capacity Building Programme on the Economics of Adaptation 2nd Regional Training Workshop Agenda Bangkok, 30 September – 4 October 2013 Source: http://www.unep.org/dewa/vitalwater/article42.html Source: http://www.unep.org/dewa/vitalwater/article43.html Water uses • World Bank Data Water and Climate Change Water infrastructures artandfoodofitaly.blogspot.com dx.cooperhewitt.org Water infrastructures www.thisoldhouse.com - Why pricing water? • More efficient allocation across alternative uses – Prices direct water where it is more valuable – Prices more efficient than other approaches • Reduces water losses: – Demand: more efficient water uses – Supply: more efficient distribution of water • Allows raising revenues for investments The following slides use material from Sheila M. Olmstead and Robert N. Stavins (2007), “Managing Water Demand Price vs. Non-Price Conservation Programs.” A Pioneer Institute Working Paper, No. 39, July 2007. This is an excellent and accessible introduction to water pricing. Pricing of water (Theory) • Buyers: – Willing to pay more for more units as scarcity increases – Downward sloping demand curve • Sellers – Efficiency requires that water be sold at the long-run marginal cost – Willing to supply more as price increases – Upward sloping supply curve • Equilibrium – Marginal benefit equal to marginal cost Equilibrium in the market for water (Theory) $/unit supply demand units Inefficient water pricing (Reality) • Water is not typically traded in efficient markets • Water not sold at the long-run marginal cost • Water is priced too low – Excessive use of residential water – Relocation of industries and agriculture where water is not abundant – Inefficient use of water in industry and agriculture Pricing methods • Flat water fees (unmetered) – No incentive to save water – Easy to administer • Volumetric rates (metered) – Increasing block prices – Decreasing block prices Block tariffs • IBP: – Affordability, right to water – If too cheap, low investment • DBP: – Subsidy to high consumers – Possibly unsustainable patterns http://www.unep.org/dewa/vitalwater/jpg/0296-tariff-EN.jpg Demand elasticity of water to price Demand functions of water Estimates in the literature Sector Estimates Residential demand -.33 / -.38 Industrial demand -.44 / -.97 ; -.15 / -.98; -.10 / -0.79 Agriculture -.48 to -1.24 Most studies based in developed countries. Price elasticities from demand functions • Demand curves for water in particular sectors • A demand curve explains water consumption as a function of marginal prices and a set of other important variables that influence consumption. • Urban residential water demand: – price, household income, family size, home and lot size, weather... Price elasticities from demand functions • Urban residential water demand: – price, household income, family size, home and lot size, weather... • Industry and agriculture – Demand as a function of industrial processes, of crop choices and irrigation technology – In the long-run industrial process and agricultural technologies, including crops and land uses are endogenous Survey methods in the absence of water markets • Willingness to pay (WTP) is the maximum amount a person would be willing to pay, sacrifice or exchange in order to receive a good (or to avoid something undesired, such as pollution) • A market transaction occurs when the price is equal or lower than the WTP • WTP as upper-bound to the price • Several survey methods have been developed to measure consumer willingness to pay. – Hypothetical – Actual