176
water users association (WUA) that receives the water from the water company
and allocates it to the farmer? Or is it the farmer himself or herself?
Different water pricing schemes can be developed depending on how the water
user is defi ned. If it is only the water provisioning company that has to pay water
prices, a water saving incentive is only set (if at all) for the provisioning company. The question arises whether and how the water company will pass on the
price to the end users. Will this happen explicitly by levying fees or charges or
implicitly by raising the water price? How can it be ensured that the end users are
confronted with the true costs of their resource use? Are the end users those entities that can best reduce water resource use or avoid the pollution and degradation of water resources? In addition, many types of water user can be subject to
pricing: the user of potable water, the discharger of wastewater, the owner of a
house (if the house is rented, the owner is not necessarily the same as the user),
the individual farmer, etc.
• What is the price for?
If the user of water resources is identifi ed and addressed by the water price, a
second question is “what does the payer pay for?” Is it water consumption or
wastewater discharge (or both)? Or is it the grid and delivery system that is chosen as a basis for pricing water? If the farmer is chosen as the addressee of water
pricing, is the price related to his or her real consumption or is it related to the
farm size? Is it a fi xed price derived from a certain formula, or is the price set
according to “actual” (real) use (requiring the monitoring of use along with measuring devices)?
• How much does the payer have to pay?
The payment is usually referred to as the price of water (in the narrow sense).
Bearing in mind the comments above regarding the defi nition of “full costs” of
water, however, several issues have to be resolved: Should the water price be
based on average costs or on marginal costs? An average cost-based water price
would lead to identical costs for all water users, while the marginal cost-based
water price would burden the users according to their specifi c (marginal) resource
use (the amount of water they use). From an economic perspective, marginal cost
pricing is superior to average cost pricing because end users are directly confronted with their resource use. However, for marginal cost pricing, measuring
and monitoring issues have to be resolved. For both types of pricing, it is
necessary to ask which cost components are included: full costs including external costs or full supply costs or O & M costs? Do the costs refer to short-term
costs or long-term costs (including new investments)? If current costs (instead of
historical costs of investment) are chosen, what is the adequate discount rate?
• What is the tariff?
The water tariff determines how the price is imposed on different consumers.
Here, several options are possible: The tariff could be based on a fi xed rate, i.e.
irrespective of consumption (this is called a fl at rate), or on a variable rate where
the price per unit of assessment base is linear, progressive or degressive. A block
tariff can be chosen, or the price can be single part (with only a fi xed or a variable
component) or two part (with a fi xed and a variable component). It could be
B. Hansjürgens
water users association (WUA) that receives the water from the water company
and allocates it to the farmer? Or is it the farmer himself or herself?
Different water pricing schemes can be developed depending on how the water
user is defi ned. If it is only the water provisioning company that has to pay water
prices, a water saving incentive is only set (if at all) for the provisioning company. The question arises whether and how the water company will pass on the
price to the end users. Will this happen explicitly by levying fees or charges or
implicitly by raising the water price? How can it be ensured that the end users are
confronted with the true costs of their resource use? Are the end users those entities that can best reduce water resource use or avoid the pollution and degradation of water resources? In addition, many types of water user can be subject to
pricing: the user of potable water, the discharger of wastewater, the owner of a
house (if the house is rented, the owner is not necessarily the same as the user),
the individual farmer, etc.
• What is the price for?
If the user of water resources is identifi ed and addressed by the water price, a
second question is “what does the payer pay for?” Is it water consumption or
wastewater discharge (or both)? Or is it the grid and delivery system that is chosen as a basis for pricing water? If the farmer is chosen as the addressee of water
pricing, is the price related to his or her real consumption or is it related to the
farm size? Is it a fi xed price derived from a certain formula, or is the price set
according to “actual” (real) use (requiring the monitoring of use along with measuring devices)?
• How much does the payer have to pay?
The payment is usually referred to as the price of water (in the narrow sense).
Bearing in mind the comments above regarding the defi nition of “full costs” of
water, however, several issues have to be resolved: Should the water price be
based on average costs or on marginal costs? An average cost-based water price
would lead to identical costs for all water users, while the marginal cost-based
water price would burden the users according to their specifi c (marginal) resource
use (the amount of water they use). From an economic perspective, marginal cost
pricing is superior to average cost pricing because end users are directly confronted with their resource use. However, for marginal cost pricing, measuring
and monitoring issues have to be resolved. For both types of pricing, it is
necessary to ask which cost components are included: full costs including external costs or full supply costs or O & M costs? Do the costs refer to short-term
costs or long-term costs (including new investments)? If current costs (instead of
historical costs of investment) are chosen, what is the adequate discount rate?
• What is the tariff?
The water tariff determines how the price is imposed on different consumers.
Here, several options are possible: The tariff could be based on a fi xed rate, i.e.
irrespective of consumption (this is called a fl at rate), or on a variable rate where
the price per unit of assessment base is linear, progressive or degressive. A block
tariff can be chosen, or the price can be single part (with only a fi xed or a variable
component) or two part (with a fi xed and a variable component). It could be
B. Hansjürgens