Understanding the Water-Energy Nexus at the Private Household Level: An Economic Perspective

Residential water and energy use are linked in multiple ways. Various household activities and appliances involve both resources. Particularly in developing countries, households commonly apply energy-intensive coping strategies to deal with unreliable water supply. To understand the water-energy nexus at the private household level, here we introduce the concept of water-energy services (WES). We analyze household water and energy demand with a conceptual economic framework based on a household production model, and illustrate examples of the demand-side linkages with an empirical case study in India using an existing household-level dataset (n=42,152). We conclude that household demand for one nexus resource depends not only on its own specific price, but also on the price for the other nexus resource as well as the opportunity cost of time, household income and income structure, other household characteristics, and production conditions for WES. Therefore, water and energy management should not be considered in isolation at the policy-making level. The economic framework developed here can serve as a conceptual basis and motivation for the empirical studies for developing sustainable water and energy management strategies.