What do economic water storage valuations reveal about optimal vs. historical water management?

What is the economic value of storing water for future droughts, and what are the consequences of this valuation for water management? One way to answer this question is to ask: ‘what is the valuation, which if used, would maximize a region's economic use of water?’ This prescriptive valuation can be done by linking classical hydro-economic models to global search methods. Another way to answer this question is to ask: ‘what do historical water management operations reveal about water's economic value?’ Indeed, past reservoir uses reveal the empirical inter-temporal valuations of past water managers. Although they may not have been optimized in a formal sense, in mature water resource systems with economic water demands, reservoir storage rules evolve via a socio-political process to embody societies' valuation of water. This empirical, ‘positive’, or descriptive valuation is captured by calibrating a hydro-economic model such that carry-over storage value functions enable simulated storage to match a historical benchmark. This paper compares both valuations for California's Central Valley revealing that carryover storage values derived from historical operations are typically greater than prescribed values. This leads to a greater reliance on groundwater use in historical operations than would have been achieved with system-wide optimization. More generally, comparing the two approaches to water valuations can provide insights into managers' attitudes as well as the impact of regulatory and institutional constraints they have to deal with – and that are not necessarily included in optimization models

Determinants of the price response to residential water tariffs : meta-analysis and beyond

Meta-analyses synthesise available data on a phenomenon to get a broader understanding of its determinants. This work proposes a two-step methodology. 1) Based on a broad dataset of residential water demand studies, it builds a meta-regression model to estimate mean and standard deviation of price elasticity of residential water demand. 2) The resulting meta-model serves as a basis for implementing an approach that directly simulates the range of price elasticities resulting from policy-relevant combinations of its determinants. This simulation approach is validated using the available dataset. Despite evidence of low average price elasticity, the scenarios simulated using our meta-regression estimates show that increasing block rate tariffs are associated with higher price elasticity, and stresses the importance of using state-of-the-art methodologies when evaluating the price response. This completes other methodological insights obtained from the meta-analysis itself. Policy implications on the use of pricing to bring about water savings are discussed

Design and assessment of an efficient and equitable dynamic urban water tariff. Application to the city of Valencia, Spain

Water pricing policies have a large and still relatively untapped potential to foster more efficient management of water resources in scarcity situations. This work contributes a framework for designing equitable, financially stable and economically efficient urban water tariffs. A hydroeconomic simulation model links the marginal value of water, which reflects water scarcity given its competing uses, to water supply reservoir levels. Varying reservoir levels trigger variations in the second block of the proposed two-block increasing-rate tariff; these variations then reflect water's value at that time. The work contrasts the two-block scarcity tariff with a constant volumetric rate for the city of Valencia, Spain, and the drought-prone Jucar basin, where most of 430,000 households are equipped with smart meters. Results show urban consumption is reduced by 18% in the driest years, lowering basin-wide scarcity costs by 34%

Assessment of smart-meter-enabled dynamic pricing at utility and river basin scale

The advent of smart metering is set to revolutionize many aspects of the relationship between water utilities and their customers, and this includes the possibility of using time-varying water prices as a demand management strategy. These dynamic tariffs could promote water use efficiency by reflecting the variations of water demand, availability, and delivery costs over time. This paper relates the potential benefits of dynamic water tariffs, at the utility and basin scale, to their design across a range of timescales. On one end of the spectrum, subdaily peak pricing shifts use away from peak hours to lower a utility’s operational and capital expenses. On the other end, scarcity pricing factors in the variations of the marginal opportunity cost of water at weekly or longer timescales in the river basin from which water is withdrawn. Dynamic pricing schemes that act across timescales can be devised to yield both types of benefits. The analysis estimates these benefits separately for Greater London (United Kingdom) and its 15 million inhabitants. Scarcity pricing implemented on a weekly timescale equates the marginal cost of residential water with estimates of the marginal economic values of environmental-recreational flows derived from tourism, property values, etc. Scarcity pricing during droughts could result in a 22–63% average reduction in environmental flow shortage while residential price increases would be capped at 150% of base levels. Yet, its ability to protect environmental flows could decrease in extreme shortage situations. The net present value of savings from peak pricing is conservatively evaluated at approximately £10 million for each initial percentage point in daily peak-hour price increase

Response of residential water demand to dynamic pricing: Evidence from an online experiment

Urban water demand management is key to water supply sustainability in high-density, water-stressed areas throughout the world, and emerging technologies could transform it. In particular, smart metering could allow for conserving water by dynamically changing prices to reflect water scarcity and supply cost variability. Yet, little is known on end-users’ reaction to short-term price changes, an essential determinant of the effectiveness and acceptability of dynamic water pricing. This paper reports on the design and results of an online experiment that measures end-users’ water consumption decisions when confronted with time-varying prices, and investigates the interaction between pricing and water scarcity awareness. We design a series of treatments where players must indicate their shower length given different water prices, price variations, and scarcity scenarios. Beyond corroborating the theory that higher prices lower usage, the experiment finds evidence of a dynamic pricing effect: users respond more strongly to a given price if they have been exposed to a lower price before. This suggests short-term residential price increases could be effective at boosting water conservation

Environmental decision support systems (EDSS) development - Challenges and best practices

Despite the perceived value of DSS in informing environmental and natural resource management, DSS tools often fail to be adopted by intended end users. By drawing together the experience of a global group of EDSS developers, we have identified and assessed key challenges in EDSS development and offer recommendations to resolve them. Challenges related to engaging end users in EDSS development emphasise the need for a participatory process that embraces end users and stakeholders throughout the design and development process. Adoption challenges concerned with individual and organisational capacities to use EDSS and the match between EDSS and organisational goals can be overcome through the use of an internal champion to promote the EDSS at different levels of a target organisation; coordinate and build capacity within the organisation, and; ensure that developers maintain focus on developing EDSS which are relatively easy and inexpensive to use and update (and which are perceived as such by the target users). Significant challenges exist in relation to ensuring EDSS longevity and financial sustainability. Such business challenges may be met through planning and design that considers the long-term costs of training, support, and maintenance; revenue generation and licensing by instituting processes which support communication and interactions; and by employing software technology which enables easy model expansion and re use to gain an economy of scale and reduce development costs. A final group of perhaps more problematic challenges relate to how the success of EDSS ought to be evaluated. Whilst success can be framed relatively easily in terms of interactions with end users, difficulties of definition and measurability emerge in relation to the extent to which EDSS achieve intended outcomes. To tackle the challenges described, the authors provide a set of best practice recommendations concerned with promoting design for ease of use, design for usefulness, establishing trust and credibility, promoting EDSS acceptance, and starting simple and small in functionality terms. Following these recommendations should enhance the achievement of successful EDSS adoption, but more importantly, help facilitate the achievement of desirable social and environmental outcomes