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Sydney Water: Pricing for Sustainability

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  • R. Quentin Grafton
  • Tom Kompas

Abstract

We examine how scarcity pricing can be used to assist with urban water demand management in Sydney in low rainfall periods using an estimated aggregate daily water demand function. Modelling shows that current water supplies and water prices are inadequate to prevent Sydney reaching critically low water storage levels should there be a low rainfall period similar to what occurred in 2001-2005. Simulations indicate that, in low rainfall periods, the water price needed to balance supply and demand exceeds the marginal cost of supplying desalinised water. The policy implication is that even with expected increases in supply (groundwater withdrawals, recycling), Sydney water prices must be substantially raised over their current levels, preferably at predefined water storage trigger levels, in response to low rainfall periods.

Suggested Citation

  • R. Quentin Grafton & Tom Kompas, 2006. "Sydney Water: Pricing for Sustainability," International and Development Economics Working Papers idec06-10, International and Development Economics.
    • Handle: RePEc:idc:wpaper:idec06-10
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    References listed on IDEAS

    as
    1. R. Quentin Grafton & Tom Kompas, 2006. "Sydney Water : Pricing for Sustainability," Microeconomics Working Papers 21835, East Asian Bureau of Economic Research.
    2. Productivity Commission, 2006. "Rural Water Use and the Environment: The Role of Market Mechanisms," Research Reports, Productivity Commission, Government of Australia, number 21.
    3. Jasper M. Dalhuisen & Raymond J. G. M. Florax & JHenri L. F. de Groot & Peter Nijkamp, 2003. "Price and Income Elasticities of Residential Water Demand: A Meta-Analysis," Land Economics, University of Wisconsin Press, vol. 79(2), pages 292-308.
    4. Quiggin, John, 2006. "Urban water supply in Australia: the option of diverting water from irrigation," Risk and Sustainable Management Group Working Papers 149857, University of Queensland, School of Economics.
    5. Tresch, Richard W., 2014. "Public Finance," Elsevier Monographs, Elsevier, edition 3, number 9780124158344.
    6. Mark Hoffmann & Andrew Worthington & Helen Higgs, 2006. "Urban water demand with fixed volumetric charging in a large municipality: the case of Brisbane, Australia ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 347-359, September.
    7. John Pezzey, 2003. "Emission Taxes and Tradeable Permits A Comparison of Views on Long-Run Efficiency," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 26(2), pages 329-342, October.
    8. Unknown, 2006. "Rural Water Use and the Environment: The Role of Market Mechanisms," Commissioned Studies 8020, Productivity Commission.
    9. repec:bla:ausecr:v:39:y:2006:i:2:p:227-237 is not listed on IDEAS
    10. Terence Dwyer, 2006. "Urban Water Policy: In Need of Economics," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 13(1), pages 3-16.
    11. Lin Crase & Brian Dollery, 2006. "Water rights: a comparison of the impacts of urban and irrigation reforms in Australia," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 451-462, September.
    12. Renzetti, Steven, 1992. "Evaluating the welfare effects of reforming municipal water prices," Journal of Environmental Economics and Management, Elsevier, vol. 22(2), pages 147-163, March.
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    1. repec:bla:ausecr:v:41:y:2008:i:4:p:401-412 is not listed on IDEAS
    2. R. Quentin Grafton & Tom Kompas, 2006. "Sydney Water : Pricing for Sustainability," Microeconomics Working Papers 21835, East Asian Bureau of Economic Research.
    3. Byrnes, Joel & Crase, Lin & Dollery, Brian & Villano, Renato, 2010. "The relative economic efficiency of urban water utilities in regional New South Wales and Victoria," Resource and Energy Economics, Elsevier, vol. 32(3), pages 439-455, August.
    4. Hughes, Neal & Hafi, Ahmed & Goesch, Tim & Brownlowe, Nathan, 2008. "Urban water management: optimal price and investment policy under uncertainty," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 6005, Australian Agricultural and Resource Economics Society.
    5. Productivity Commission, 2008. "Towards Urban Water Reform: A Discussion Paper," Research Papers 0801, Productivity Commission, Government of Australia.

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    More about this item

    JEL classification:

    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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