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OS6d Water pricing: approaches and impacts

abstract 591

Residential water price elasticity and full water cost estimation according to the European Water Framework Directive

Author(s): Nikitas Mylopoulos, C. Fafoutis, D. Vagiona
Assistant Professor Dept. of Civil Engineering – Faculty of Engineering University of Thessaly

Keyword(s): demand management, price elasticity, water full cost, residential water use, integrated water policy, water conservation

Article:

Poster:

Session: OS6d Water pricing: approaches and impacts

AbstractResidential

water price elasticity and full water cost estimation according to the European Water Framework Directive

N.

Mylopoulos, Fafoutis C. and Vagiona D.
Dept. of Civil Engineering – Faculty of Engineering
University of

Thessaly, Pedion Areos 38334 Volos
Tel: +3024210 74162 email: nikitas@uth.gr

Preferred mode of

presentation: Oral
Congress Sub-theme most closely related to the paper:
6. Water conservation and demand

management -Economic instruments and water pricing

Abstract

The relationship between water

abstraction and water availability has turned into a major stress factor in the urban exploitation of water resources.

There is a wide recognition nowadays that there is a need for strategies for the sustainable use of water resources

and water demand management.
In the city of Volos-Greece the number of water counters has been almost

tripled during the last 3 decades. The fact that water sources have remained stable has created a derangement of

water balance. In order to evaluate various aspects of current water policy, investigate the perspectives of water

saving, explore new approaches toward sustainable water management in the water supply sector and evaluate

water price elasticity, a survey has been performed recently in the city of Volos, concerning the residential

sector.
All qualitative data was gathered through questionnaire with the method of personal interview. Time series

data of 3-month water consumption levels from 1997 to 2005 were collected from databases of Water Utility of the

city of Volos, while raw data concerning rainfall and temperature were retrieved from stations in the city of Volos.

Water quality, water demand and water availability issues, water related problems, as well as public information

concerning water and environmental issues, public reactions in price changes and public willingness to pay in the

residential sector are the main aspects examined and analyzed.
The influence of some selected variables such as

the price of water, the size of the dwelling, the indoor and outdoor uses, the educational level, the income of

consumers as well as rainfall and temperature levels was examined and residential water demand curve was

calculated using the fixed-effects and random effects model. Elasticity with respect to marginal and difference price

was estimated to be -0.95 meaning that price elasticity was inelastic. Nevertheless the price of water affects

consumers' water usage behaviour as they perceive big changes in this price and tend to reduce their water usage as

it increases.
Estimations of future water demand under different pricing policies were then
performed using the

IWR-MAIN model. Those policies were being
evaluated, and the revenues of the Water Utility of Volos were

calculated for
each pricing-policy scenario.
The price of water is a critical parameter as far as domestic

consumption is concerned and therefore contributes to demand side management. The European Water Framework

Directive refers to the principle of the recovery of the
costs of water services and clarifies the cost components

that should be
included in full cost. According to the above principle of the WFD, full water
cost in the city of

Volos was estimated, and the included cost components
were:
• the direct (financial) cost, that represents the

costs of investments, operation, maintenance, labour, administrative costs and other direct economic costs.
•

the resource cost, that represents the loss of profit due to restriction of
available water resources, and
•

the environmental cost, that represents the cost from the damage of the
environment and the aquatic ecosystems

incurred by water uses and services
The conclusions of this study prove that water pricing and public participation

are necessary precursors of achieving the ecological goals of Water Framework Directive. It is evident that through

demand oriented water policy, water would be used more rationally and valued more highly.

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Residential water price elasticity and full water cost estimation according to the European Water Framework Directive