Water Charges

A charge can be defined as a ‘price’ paid on the use of the environment (HELMER & HESPANHOL 1997). As a type of water pricing, water charges can be related to both the use as well as the pollution of water. Besides their cost recovery element, they may also include demand management (see also water resources assessment, water balance estimation, demand creation, water allocation, tradable water rights, subsidies, and water pricing) to stimulate certain behaviour (SAVENIJE & VAN DER ZANG 2002). The outcome of water charges is a higher price, which (following market forces) reduces the demand for water or water pollution.

Charge systems are one of the most frequently used economic tools to reduce the negative effects of over-consumption of water as a resource (other widely used economic measures are: subsidies, tradable water rights and water pricing).

The aim of charges is to reduce the demand for or the pollution of water by imposing a fee or tax on the consumer (opposed to the creation of an incentive for innovation by promoting money for a defined action or inaction of the consumer). Firms will reduce the consumption or pollution of water if behavioural change is less expensive than paying the charge. To reduce the amount of consumption, firms can either produce less or develop and improve new, more efficient production technologies. Charge systems therefore also place incentives for innovation. Furthermore, with the collection of charges, the government can raise increased revenue to redistribute (STAVINS & WHITEHEAD 1992).

Four main types of charges can be identified (adapted from HELMER & HESPANHOL 1997):

• Emission/effluent charges: Based upon the quantity or quality of the discharged pollutant.
• User charges: Include for example fees paid for the use of drinking water and wastewater treatment facilities. They may be variable (e.g. increasing, decreasing or uniform volumetric), fixed or a combination of the two (see also water pricing).
• Product charges: Charges levied on products that are harmful to surface or ground water (e.g. pathogens, fertilisers, pesticides, lubricant oils, see also pathogens and contaminants).
• Administrative charges: Fees paid to authorities for such purposes as chemical registration or financing licensing and pollution control activities.

The implementation of charges on water use and pollution imposes several requirements on regulators and the regulated community (adapted from ANDERSON 2002):

• Emissions or effluents need to be measured.
• An appropriate fee level needs to be set.
• The due amounts need to be collected.
• The collected amounts need to be allocated.

There are several factors hindering or facilitating an enabling environment for the implementation of charges. They contain amongst other the creation of policies and a legal framework, building an institutional framework, as well as strengthening enforcement bodies.

Implementation Differences to Tradable Water Rights

The applicability of economic measures depends on both the specific environmental problem as well as the particular objectives of public policy. Differences in the implementation effects of charges to tradable water rights are (adapted from STAVINS & WHITEHEAD 1992):

• Charges do not impose a fixed level of consumption/pollution, but rather create an incentive for less consumption or pollution by providing an economic benefit.
• The monetary resource transfer is private-to-public because the charges are levied by the state (opposed to private-to-private between tradable water rights).
• The costs on public and industry are more explicit compared to tradable water rights, because the user does not perceive them as being rights to pollute or use, but rather as restrictions.
• Charges do not adjust automatically for inflation.

Charges are less susceptible to strategic behaviour of firms: If one firm holds a great part of the available permits in a water rights system, its activities may distort the price of permits.