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

    1. 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).
    2. 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.

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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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