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A framework for valuing water in England and Wales

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  • Stern, Jon
  • Mirrlees-Black, Jonathan

Abstract

The paper has as its main objective the design of a framework for valuing water in England and Wales in the medium-term i.e. 2015–2020/25. However, the paper addresses this in the context of what would be the most appropriate long-run market and trading framework for the efficient abstraction and use of water in the long-run, i.e. post 2025. We set out objectives and constraints both for the medium-term and the long-term. The main objectives are to provide effective signals (a) for the right level and type of investment in both new resources and network infrastructure; and (b) for efficient water resource use. Given the length of life of new water industry investment, we attach greater priority to investment incentives. For the medium-term, we also attach considerable importance to the objectives of a flexible framework and evolutionary potential. We conclude that for the medium-term, the best alternative is a “BST” (bulk supply tariff) model. Under a BST model, the incumbent water company is required to offer water at a ‘default’ regulated wholesale price, but wholesale and retail parties eligible to trade can do so bilaterally outside this mechanism.

Suggested Citation

  • Stern, Jon & Mirrlees-Black, Jonathan, 2012. "A framework for valuing water in England and Wales," Utilities Policy, Elsevier, vol. 23(C), pages 13-30.
    • Handle: RePEc:eee:juipol:v:23:y:2012:i:c:p:13-30
    DOI: 10.1016/j.jup.2012.07.006
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    References listed on IDEAS

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    1. Littlechild, S., 2010. "The Creation of a Market for Retail Electricity Supply," Cambridge Working Papers in Economics 1035, Faculty of Economics, University of Cambridge.
    2. Martin L. Weitzman, 1974. "Prices vs. Quantities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(4), pages 477-491.
    3. Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510790, December.
    4. John Vickers & George Yarrow, 1988. "Privatization: An Economic Analysis," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262720116, December.
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    Cited by:

    1. Martins, Rita & Quintal, Carlota & Cruz, Luís & Barata, Eduardo, 2016. "Water affordability issues in developed countries – The relevance of micro approaches," Utilities Policy, Elsevier, vol. 43(PA), pages 117-123.
    2. Martins, Rita & Quintal, Carlota & Teotónio, Carla & Antunes, Micaela, 2023. "Water affordability across and within European countries: a microdata analysis," Utilities Policy, Elsevier, vol. 83(C).

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    More about this item

    Keywords

    Water; Abstraction pricing; Investment incentives; BST model;
    All these keywords.

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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