3. Managing residential water demand in the OECD

Water scarcity is a growing concern in many cities due to rapid population growth, rising incomes and the associated increasing demand for water, and increasingly variable water supplies resulting from changes in the global climate. Due to the economic and environmental costs of large-scale investments in water supply, together with the significant time required for planning and implementation, many urban areas are seeing increasing use of policy measures designed to regulate urban water demand. This research looks at the effectiveness of these demand-side policy measures on residential water demand in the countries of the Organisation for Economic Co-operation and Development (OECD). According to standard economic theory, the most efficient way to regulate water demand is through volumetric prices (Grafton and Ward 2008). Under such a system, users pay a charge for each unit of water consumed, as opposed to water tariffs, which charge users a block rate depending on the level of their consumption. By using volumetric charges, the water price can be raised during times of scarcity so that users consume less water, thereby reducing demand when supplies are low (Ward et al. 2011). Due, however, to concerns over the equity of using water prices to regulate demand, and claims that residential water use is unresponsive to changes in price, many water utilities focus on non-price approaches. These include requirements or subsidies for using water-saving devices, such as low-flow shower heads and dual-flush toilets, and the use of public information campaigns to promote water conservation attitudes, such as taking showers instead of baths. Mandatory water restrictions are an additional non-price approach that is sometimes used to regulate water demand during times of water scarcity. While effective, they can generate significant welfare losses for water users and, as such, was not considered in this research (Ward et al. 2011)