Cape Town faced several droughts over the last few years, resulting mainly in water restrictions and development of alternative supply options. These responses succeeded in stabilising water use, but an important, but often overlooked question is at what cost it was achieved.
Some response options are just more costly then others.
Using prices to manage water demand is more cost-effective than implementing non-price conservation programs. The gains from using prices as an incentive for conservation come from allowing households to respond to increased water prices in the manner of their choice, rather than by installing a particular technology or reducing particular uses, as prescribed by non-price approaches. Price-based approaches also have important advantages in terms of monitoring and enforcement.
Raising water prices (like the elimination of any subsidy) is politically difficult, but there may be political capital to be earned by elected officials who can demonstrate the cost-effectiveness advantages of the price-based approach. At a minimum, communities choosing politically popular low water prices over cost-effectiveness should quantify this tradeoff and make it explicit. Where water rate-setting officials are constrained by law from raising water prices, during droughts or in general, a discussion of the real costs of these constraints would be useful.
(photo: Ballardian, Sandy Scheltema; courtesy Age newspaper)