Price and Non-price Approaches for Reducing Residential Water Demand

Transcription

1 Price and Non-price Approaches for Reducing Residential Water Demand Kurt A. Schwabe Associate Professor of Environmental Economics and Policy Kenneth A. Baerenklau Associate Professor of Environmental Economics and Policy Ariel Dinar Professor of Environmental Economics and Policy

2 Objectives/Outline Highlight recent findings from studies of water conservation Comparison of price vs. nonprice approaches Effectiveness of nonprice approaches Price-based approach Non-Price Approach Results from UCR s analysis of EMWD transition from a uniform pricing structure to an allocation-based increasing block-rate structure (water budget)

3 Water Conservation: Price vs. Non-price Approaches How do price-based measures compared to other approaches? Timmons (2003). Compared mandatory low-flow appliance regulation vs modest water price increase using data from 13 groundwater dependent California cities Prices almost always more cost-effective than technology standards Brennan et al. (2007). Studied sprinkler restrictions in Perth, Australia Restrictions on use of sprinklers leads to more overwatering from handheld hoses resulting in little water savings but additional costs Grafton and Ward (2008). Compare effectiveness of mandatory restrictions to water prices in Sydney, Australia Find that mandatory water restrictions result in costly and inefficient responses relative to prices

4 Technology-based Rebate Program Effectiveness Water savings from rebates programs often smaller than initially supposed (Olmstead and Stavins, 2007) Mostly due to incorrect assumptions regarding behavior (rebound effect) Examples: (Dupont, 2014; Mayer et al. 1998; Davis 2008) Low-flow showerheads result in longer showers Low-flow toilets result in more flushing Front load clothes washers result in more cycles Studies of households fit w/ low flow fixtures get mixed results Estimated savings from Low-flow toilets vary from 0 to 10.6 gpcd Estimated savings low-flow showerheads vary from 0 to 9%

5 Social Norm-based Messaging Two studies: East Bay Municipal Utility District s Pilot of WaterSmart Home Water Reports (Mitchell and Chestnutt 2013) Atlanta Water Utility s Pilot of Social Norm Messaging in 2007 (Ferraro et al. 2011) General Results: ~ 4 to 6% reduction in water use relative to control Effectiveness is reduced (wanes) when program stops Greater response by higher water users (no boomerang effect) Increase participation in other programs ( uplift or channeling ) If focus on those above median user, much more cost-effective

6 Turf Grass Removal / Cash for Grass Question: How much can replacing grass w/ drought tolerant plants help? Answer: Gallons per square foot Estimated Water Savings from Various Turf Replacement Programs (Addink 2014) North Marin Water District 1989 (n=46) 19 Albuquerque, NM since 1996 Southern Nevada Water Authority Did not require irrigation improvements 18 El Paso, Texas 2004 (n=385) => Cost/AF: $512 (California) to $1834 (El Paso)

7 Effects of Allocation-Based Pricing on Residential Water Demand: The Case of Eastern Municipal Water District Baerenklau, K., Schwabe, K., and Dinar. A The Residential Water Demand Effect of Increasing Block Rate Water Budgets. Land Economics, forthcoming Funding and data provided by Eastern Municipal Water District. Special thanks to Behrooz Mortazavi, Elizabeth Lovsted, and Kristian Barrett.

8 Uniform-Rate Model Estimation strategies: 2 models Estimate a uniform rate demand model using EMWD data from January 2003 December 2008 Predict what monthly demand from 2009 to 2014 would have been under uniform rates given actual conditions Compare to actual water usage under new rates Allocation-Based Increasing Block Rate Model Estimate using EMWD data from 2009 to 2014 under new structure Investigate how pricing can be used by water agencies to respond to: Population growth? Economic growth? Climate change? w/ efficiency, equity, and financial stability concerns in mind

9 Estimation results: Model 1 Household CCF/month 20 Average Monthly Demand: Jan-03 Jan-04 Jan-05 Observed Jan-06 Jan-07 Predicted Jan-08 5% 0% -5% -10% -15% -20% -25% -30% Demand reduction attributable to the rate change: 12-month moving average Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 Full sample Sep-12 Apr-13 Nov-13

10 Estimation Strategy Model 2 - Block-Rate Model Scenario Analysis Change in predicted demand -15% -10% -5% 0% 5% 10% 20% increase in tier 1 price -1.2% 20% increase in tier 2 price -8.0% 20% increase in tier 3 price -1.7% 20% increase in tier 4 price 0.0% Scenario 20% increase in all prices 20% decrease in tier 1 size 20% decrease in tier 2 size -10.8% -4.0% -4.3% 20% decrease in tier 3 size -0.4% 20% decrease in all block sizes -9.2% Doubling of the daily service charge -0.5% 10% increase in personal income 0.5% 10% increase in ET 5.3% 10% increase in summer ET 1.8%

11 Conclusions (Cost)-Effectiveness of any conservation approach depends on numerous factors Biophysical, socio-economic, demographic, institutional Implementation of other programs Price and pricing structure (Smith and Zhao, 2014) Prices are both effective and cost-effective at reducing demand Structure likely matters yet very little information on this Future gains, especially cost-effective gains, will require a better understanding of the how and why people respond to price and nonprice instruments (i.e., behavior)