Fiscal Tools to Develop the Circular Water Economy

In the linear economy, following the Take-Make-Dispose model, the water sector typically employs the Take-Use-Discharge strategy. In this strategy, water is ‘withdrawn’ from streams, rivers, lakes, reservoirs, oceans, and groundwater reservoirs as well as harvested directly as rainwater. Water is then ‘used’ by municipalities, industries, agriculture, the environment, etc. within the water cycle, including for consumptive and non-consumptive uses. Non-consumptive used water is ‘returned’ to the river basin directly or via a municipal treatment facility. Depending on the location within the river basin this returned water could then be used downstream or lost to the basin.

Circular Water Economy

This Take-Use-Discharge model is becoming fast obsolete with climatic and non-climatic trends including rapid population and economic growth as well as urbanisation impacting the availability of water resources for both humans and nature. In response, water utilities are beginning to implement the circular water economy that aims to reduce water usage and reuse and recycle water to lower demand for scarce water resources while mitigating greenhouse gas emissions.

To facilitate the development of the circular water economy, water utilities using fiscal tools to encourage water conservation and the development of water reuse and recycling systems. Fiscal tools are easy to implement and provide decision-makers with the flexibility and creativity to tailor programmes to specific priorities or to geographic areas in a community. This enables a city’s water utility to focus its resources and programme efforts on a more manageable scale and can provide the opportunity to pilot new incentives to determine the potential for city-wide application.

Water Pricing

The main pricing structures used by water utilities to promote the conservation of water resources are volumetric rates, increasing block tariffs, and two-part tariff systems. A volumetric rate is a charge based on the volume used at a constant rate. Therefore, the amount users pay for water is strictly based on the amount of water consumed. An increasing block tariff contains different prices for two or more pre-specified quantities (blocks) of water, with the price increasing with each successive block. The pricing of water can also be done using a two-part tariff system: a fixed and a variable component. In the fixed component, water users pay one amount independently of consumption and this covers infrastructural and administrative costs of supplying water. Meanwhile, the variable amount is based on the quantity of water consumed and covers the costs of providing water as well as encouraging conservation.

Singapore’s Water Price Increase to Meet Future Demand

Singapore’s Public Utilities Board (PUB) has three components to the water price in the monthly bill: A Water Tariff that covers the costs incurred in the various stages of the water production process (collection of rainwater, treatment of raw water, and distribution of treated potable water to customers). The Water Tariff is charged based on the volume of water consumed. The Water Conservation Tax (WCT) encourages water conservation and reflects its scarcity value. The WCT is imposed as a percentage of the Water Tariff to reinforce that water is precious from the first drop. Meanwhile, the Waterborne Fee (WBF) goes toward the cost of treating used water and maintaining the used water network. The WBF is based on the volume of water usage. PUB raised the price of water by 30% during two phases over the last two years, with the first phase taking place on 1 July 2017 and the second on 1 July 2018. Large investments, along with rising operational costs, have made the increase in water price necessary to ensure the utility can cater to future demand, strengthen Singapore’s water security, and continue delivering a high-quality and reliable supply of water

Subsidies and Rebates

Economic instruments such as subsidies and rebates are used to modify water users’ behaviour in a predictable, cost‐effective way, that is, reduce wastage and lower water consumption. Subsidies (incentives) are commonly used to encourage the uptake of water‐saving devices or water‐efficient appliances as positive incentives are found to be more effective than disincentives in promoting water conservation. Subsidies and rebates are also used to encourage the installation of water reuse and recycling systems to reduce demand for potable water for non-potable uses. Overall, incentives have been found to reduce the gap between the time the incentive is presented and behavioural change as compared to disincentives.

New York City’s On-Site Water Reuse Grant

New York City’s Department of Environmental Protection has launched its On-Site Water Reuse Grant Pilot Program to provide commercial, mixed-use, and multi-family residential property owners with incentives to install water reuse systems. Grants are available for water reuse systems at the individual building and district level, with district-scale projects involving two or more parcels of land such as a housing development, where the project reduces demand in the shared distribution system. Individual building-scale projects can receive up to $250,000 in reimbursement for a system designed to save at least 32,000 gallons per day (gpd), and district-scale projects are eligible to receive up to $500,000 in reimbursement for a system designed to save at least 94,000 gpd. The NYC Construction Code regulates two types of on-site water reuse systems that can be installed: wastewater reuse systems (black water, greywater, rainwater) for non-potable uses including flushing of toilets and urinals, laundry, and subsurface drip irrigation systems and rainwater reuse systems for non-potable uses including subsurface drip irrigation.

Conclusions

With water scarcity increasing due to climatic and non-climatic trends, water utilities are using fiscal tools to develop the circular water economy including raising water prices to meet future demand and grants to encourage the reuse of water.