The Water Dissensus – A Water Alternatives Forum
Increasing block tariffs: It could have been a good idea
It's better to be approximately right than precisely wrong!
Evan Vlachos, late water sociologist in Colorado
A recurrent problem with environmental economists is their tendency to idealize solutions that seem obvious, while forgetting their administrative and transaction costs. This is frequently the case with water tariffs: metering is often advocated to stimulate water conservation. When metering allows identification of large users, it is tempting to mix moral with economic considerations. This often leads to the conclusion that the wasters will be the payers in implementing a progressive tariff, also called increasing blocks tariff (IBT). The idea is that the first volume of water metered is cheap or even free; additional blocks follow with higher and higher volumetric prices. Once this idea is picked up by the media and politicians, it is endlessly repeated without any counterchecking. IBTs were even advocated by French President Macron among the 53 measures of the post-2022 drought water plan. Yet in practice, such a tariff system entails high administrative costs, does not reduce consumption in the long run, and has regressive effects on large poor families.
In addition, a significant proportion of the European urban population lives in condominiums with no separate meters: in Paris, there is usually only one meter per building[1], and the collective water bill is allocated between resident families based on the flats' total area (Barraqué, 2011). Retrofitting separate meters is costly. In large and recently built condominiums, submeters are now installed. However, keeping collective billings reduces the amount of bills in arrears. In Britain, the systematic metering policy adopted with privatization results in 40% of customers delaying their bills payments by six or more months.
After decades of expansion in water supply systems, a double crisis is looming: water consumption is declining in cities, while renewal of aging infrastructure requires more investments. Typically, if people conserve water, operators sell less. Since tariffs represent almost all the income while operating costs are fixed and represent most of the expenses, this leads to a financial crisis. Increasing the water price to recover costs then impacts poor customers, who cannot afford to invest in water-saving appliances.
In short, it is very difficult to pursue both consumer justice and social justice with the same water tariff: administration costs can offset the benefits that were initially sought. Typically, the American Water Works Association recommends "think outside the bill", to avoid complexifying the recovery system. Interestingly enough, on tariffs and their social effects in developing countries, Boland and Whittington (2000), as well as Komives (2005), also recommended not to opt for IBTs but rather to provide rebates to people struggling to afford paying their bills.
One reason is that ideally, a progressive tariff should be applied per capita. This requires knowing how many people live behind the meter. Ignoring this is a minor problem if each family has a separate meter, but in the case of collective metering, large multifamily units might end up in the expensive block rates. Conversely, with collective metering, families in condominiums benefit from the fixed part being divided by the number of apartments behind the meter[2]. Adopting separate meters and individual billing for the sake of implementing an IBT will dramatically increase water bills in condominiums, so that progressive water consumption reduction will not be sufficient to offset it, even for small households.
Worse, increasing the fixed part of the bills to make up for the additional costs and/or the reduced income of the operator goes against the initial objective of progressive tariffs, supposed to increase the elasticity of consumption to price.
The latter is low because people do not react to price changes immediately; they replace appliances only when they are out of order. When they do, the new ones use less water, which explains why water consumption decreases slowly, and not in direct response to price changes. A tariff increase, however, often does trigger conservation, but people's motivation frequently fades away after a few months. It is more efficient to visit 'water wasters' and teach them how to save water and control their leaks.
Progressive tariffs are wrongly based on an assumption that poor people use less (indoor) water than rich ones. When the United Nations adopted the right to water, many water experts tried to translate it into progressive tariffs. Was this not to try to save the very idea of cost recovery through bills in places where a large percentage of the population does not have good consumer service, and therefore refuse metering?
In Belgium, where water supply services modernization was relatively late in being implemented, the double project to target the wasters and protect the poor made IBTs quite popular, first in Flanders region. Yet, as early as 1998, Peter Van Humbeeck (2000) wrote a counter-intuitive report for the regional socio-economic council: the initial free volume of 15 m3/year per capita followed by a higher volumetric tariff to reach the same final revenue, resulted in poor families paying more and richer ones paying less. This is due to larger families being those who can afford to bring up more children, for whom the free 15 m3 per capita ends up making the total bill cheaper per person.[3]
Wallonia then opted for a water tariff with only two blocks and no free volume, but with the same will to encourage water conservation and to implement a right to water. Unfortunately, further investigations showed that it failed, for several reasons (Prevedello and Barraqué, 2017): very low elasticity to price increase; inattention of most households to water charges (in particular in collective units); temptation for users to substitute public water supply with other sources (e.g. harvesting rainwater or using a private well), thus reducing the income of the supplier; a tariff increase to cover the costs would impact the poor if made through a higher fixed portion of the bill. In short, a progressive tariff would be self-defeating!
The Brussels Region also adopted an IBT in 2006, and abandoned it in 2021, after a university study showed its ineffective impacts on consumption and social protection (May et al., 2021). In addition, the high percentage of people living in condominiums made it more difficult to find out the real number of people in households, despite this information being legally available in a national register – but usually outdated and inaccurate.
Then imagine the situation in France where operators are not even allowed to obtain this information on household size. Suez then experimented with IBTs per apartment: as many fixed parts as the number of apartments and an application of block charges on average consumption of one apartment. After combining all fixed and variable charges, only one bill is sent to the condominium. However, the redistribution of charges among residents is uncertain.
In conclusion, water supply is not a market good but a club good subject to the constraints of public services. If some pay less, others pay more, or the water supplier loses money! This also shows how difficult it is to design a sustainable tariff given the complexities, often unsuspected by environmental economists. In the end, some cities in France (Nantes, Bordeaux) rejected IBTs, while providing rebates to the limited number of families in condominiums who would pay more than 3% of their revenue with the ongoing tariff.
References
Barraqué B, 2011. Is individual metering socially sustainable? The case of multifamily housing in France, in Water Alternatives 4(2): 223-244. www.water-alternatives.org
Boland, J., Whittington, D. 2000. The political economy of water tariff design in developing countries: Increasing block tariffs vs. uniform price with rebate. In A. Dinar (ed), The Political Economy of Water Pricing Reforms. World Bank – Oxford Univ. Press, pp. 215-235.
Komives, K., Foster, V., Halpern, J., Wodon, Q. 2005. Water and electricity for the poor: Who benefits from utilities' subsidies? Washington, D.C.: The World Bank.
May X, Deligne C. et al. Pourquoi ne pas en finir avec la tarification progressive de l'eau à Bruxelles, in Brussels Studies, 2021. https://doi.org/10.4000/brussels.5494
Prevedello, C., Barraqué, B. 2017. Les tarifications progressives et sociales de l'eau. Contribution au Congrès de l'ASTEE à Liège, Actes, 2017.
Van Humbeeck, P. 2000. The distributive effects of water price reform on households in the Flanders Region of Belgium. In Dinar A. (Ed), The Political Economy of Water Pricing Reforms, Oxford Univ. Press, pp. 279-295.
[1] In Paris' 20 arrondissements, there are only 93,000 meters for a population of 2.2 million, plus an extra million commuting to work in office or commercial buildings.
[2] In Toulon France, we found that single families would pay €100/yr, while a 51-apartment condominium would be charged 600 €/yr, i.e., 12 €/apartment. The fixed part is in fact set on the diameter of the collective meter.
[3] In Belgium, on average, the second child uses 20 additional m3, and the third child even less.
Comments 6
In Sevilla after drought 1992-1995 collective 'blocks' metering was converted to individual meters.(compulsory) .no water price increase....RESULT 25% reduction in water consumption (end of 'free rider effect').
25% is a lot.(efficient wate rpricing) ...and also it is not equitable block metering should be forbiden as a 'single old pensionist' is paying for the suerfluos oover use of some neightbour....
Dear Julio, I understand your position which is logical in a country where metering was developed later than in France, Germany or Northern Italy, and where the reduced costs and better accuracy of meters allowed to individualize the metering and billing at apartment level from the beginning. But I am not sure that it is the replacement of block metering by individual apartment metering which induced water conservation. Indeed, it is obvious that only one meter per block (I'm not sure I understand what you mean by 'blocks' meters) meant that nobody cared about water consumption and water prices should have been very very far from full cost pricing. So that replacing bad and old block meters by collective building meters (and even smart ones) might have had the same water saving effect than individualization. I can only suggest that somebody in Sevilla makes the more in-depth study to prove what has to be proved.
In large condominiums in French cities, managers adopt not individual meters, but sub-meters which allow to allocate the collective bill according to individual consumptions. Each resident family benefits from a reduced adminitrative metreing cost.
The second part of your message also attracts my attention : why do you want to protect the single old pensionist, without knowing how much water he/she uses. In France the installation and management of as many meters as number of apartments largely offsets the additional cost paid by small water users not paying anymore for large families. In fact as long as you do not know how much water is used by each apartment, you cannot claim what you claim. What is however sure, is that unconsciously the way metering was developed after WW2, did have a redistributive effect in favor of families with children, which means inter-generational social sustainability. Conversely, those who in France want to individualize metering are usually rich and educated pensionists whose children have left home. They start thinking that they are losers only when their children have left. They feature a society where selfish old people with no kids dominate.
Thank you Bernard for continuing to track the many problems with IBTs.
As you know, I am a fan of fixed charges where water is abundant (a shrinking share of service spaces, worldwide) and "scarcity surcharges" where water is scarce. As I explain in this post (and my free-to-download book), those (volumetric) charges are on TOP of cost-recovery, which means they can be refunded per meter (fixed), which means that heavy users subsidize lower users. (I can't help with family sizes!)
Meter water like we meter everything else: per unit. IBTs do not exist outside the imaginations of academics and activists, so let's drop them in favor of market-tested pricing structures.
Thank you for your comment David. I'm not sure I understand all you say since it is somewhat allusive. I of course agree that water supply is a well-known 'fixed costs' industry. The specificity pf the assets implies that if people do respond to incentives to conserve, the operator might not cover his costs and will have to raise the unit price! So, ok if water is abundant no need to over-incentivize water conservation.
But concerning your support for individual billing, I would like to help with family sizes, and I can't help with the overwhelming fraction of Americans who live in single family units, and for whom individual billing is the only way they can think. Mind you that I had many discussions about 10 yrs ago with the head of the Boston Water and sewer commission, and he explained me how they rejected individual billing as un-necessary once people in condominiums accept to tell how many people are behind a meter.
I must admit that such fair behavior from residents could hardly be expected in France, where a good alternative is for building managers to sign a contract every 5 or 10 yrs with a company specialized in leaks detection (acoustic technology) and engage in leaks control in apartments. In particular in places like northern France or Belgium where water consumption is around 100 lcd, when In LA it is above 600, and in Las Vegas 1200. Properly designed IBTs might help in the latter case!
With some colleagues and some operators, we are now testing the redistributive and incentive effects of seasonal tariffs instead of progressive. You should like that!
Adelaide in South Australia (climate similar to Tunis) has been through the lot. Initially in the early 20th Century there was a fixed charge but soon meters were fixed to every household and two tariffs were charged. This was because water was becoming more and more expensive as local supplies were no longer sufficient and water had to be pumped across the hills from the Murray River. There was the basic amount for the house hold and an excess water charge. This was justified on social grounds but was economically and scientifically sound. Adelaide is a garden city so excess water was being used for irrigation. That is it was being used not recycled. Drinking water, meeting hygiene standards, is an expensive means of irrigating. In the 1990s the neoliberal revolution meant the removal of the social quota.
Since then the emphasis has been on the real problem of water supply to a much greater extent. That is trying to change the whole water cycle. Every new house for the last 30 odd years has had to have a soak pit for clean rain water off roofs. This recharges the aquifer and the aquifer is used to irrigate parks and public gardens. Storm water holding areas have been created by flooding play grounds and parks. There is also a system to remove pollutants from this grey water. The treated sewage was discharged into the sea but is now used to irrigated vines.
A scheme was developed for a new town (it was not developed eventually) to irrigate street trees with treated sewage. We were concerned about health problems with drip systems but we developed an underground drip system.
In Europe treated sewage (often untreated in UK) is discharged into rivers and then extracted by the next city down stream. The only real loss from evaporation and transpiration is small. The main loss is treated sewage when cities are on the coast. More effort should be focused the whole water cycle.
Dear Brian thank you for your interest in my blog post. My first reply is that the debate on how to price water cannot be driven without linking it to the particular situation of water resources avalability etc. Having been confronted with water scarcity before many othe parts of the globe, Australia is clearly a leader. I suppose there are now efforts to develop xeri-gardeing on top of waste water reuse in garden irrigation. The latter is appropriéte for cities on the coast, but inland cities must pay attention to keep discharging treated wastewater to feed rivers in the dry periods.
I have discovered that in Los Angeles CA, the first tariff block includes a certain amount of garden irrigation water, which is proportional to the size of the garden. As a result resodents who reach this second block don't make any conservation effort, the rpice should be much higher which would be politically hot !
I agree with your proposal to link WSS services issues with water resources ones, but it is not simple.