Water Demand Modeling
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Transcript of Water Demand Modeling
Water Demand Modeling
Emanuele MassettiFEEM and CMCC
Prepared for the Capacity Building Programme on the Economics of Adaptation2nd 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
dx.cooperhewitt.org artandfoodofitaly.blogspot.com
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 investmentsThe 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
units
supply
demand
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 literatureSector 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