Demarketing water: the use of home retrofit schemes to reduce household water consumption in Australian capital cities

Transcription

1 Demarketing water: the use of home retrofit schemes to reduce household water consumption in Australian capital cities Greg Barrett and Margaret Wallace School of Business, University of Canberra, Australia

2 Demarketing water: the use of home retrofit schemes to reduce household water consumption in Australian capital cities. Abstract This paper examines the use of the internet by six Australian water utilities to determine whether they promote home retrofits as a means of reducing household water consumption. (Home retrofits are an effective means of reducing household water consumption by assisting householders to install water-efficient technology). It evaluates the effectiveness of the utilities websites in promoting the retrofits and then uses institutional economics to consider the incentives inducing the utilities to promote these schemes. The paper s findings support the hypothesis that the greater the government ownership and control of a utility, the greater the incentive for that utility to promote water conservation. It also notes the potential of mandatory water conservation targets and pricing strategies to motivate the utilities to implement retrofit schemes effectively. Background In , total water use by the household sector was 2.2 million ML. This was 280,000 litres per household and accounted for 8.8% of total water consumption in Australia (ABS 2004a). By June 2004, dam levels in Sydney, Melbourne, Canberra, Adelaide and Perth were all below 50% capacity, and water restrictions were in force in all those cities (The Australian 2004:11 ). The water crisis has been exacerbated by population growth and declining rainfall- for example, flows into Sydney s largest dam, Waragamba, have fallen from an average of 71,635 megalitres a month in to an average of only 39,881 megalitres a month over the years (ibid.). In the year to December 2004, Sydney s population increased by 33,500, Melbourne s by 44,600 and Brisbane s by 40,000 (ABS 2005). It is therefore not surprising that for capital city residents, water restrictions are now a way of life, and we have all become familiar with water utilities advertising campaigns urging us to use less water. Paradoxically, these utilities depend for their income on water sales, so that there appears to be an inherent contradiction in expecting them to engage in demand reduction. To explore this contradiction further, in this paper we focus on one strategy for reducing domestic water use, the home retrofit scheme. A home retrofit scheme involves having a plumber visit the consumer s home and installing a water-efficient showerhead 1 for a minimal charge ($30, for example). The scheme may also include other benefits, such as free leak repairs, the installation of flow regulators on taps and the provision of cistern weights to reduce the water used in flushing toilets. Our paper examines the evidence in favour of this strategy, then looks at six capital city water authorities to see whether they are implementing the strategy and if so, how 1 Barrett (2004) examines the efficiency, effectiveness and equity of approaches to water conservation. He identifies water-efficient showerheads as an economically efficient water saving technique. 2

3 effectively they are promoting it via the internet. In so doing, we test the hypothesis that an effective retrofit program is more likely to be implemented by those utilities with a higher degree of government ownership and control. Social Marketing Theory In this paper we draw on the concept of social marketing, which seeks to influence social behaviours not to benefit the marketer but to benefit the target audience and the general society (Kotler and Andreasen 1996: 389). From a social marketing perspective, advertising is only the most visible part of a strategy designed to promote and assist behavioural change. The type of integrated strategy we envisage is illustrated by the following model: Attitude change Legislation FIGURE 1 Reducing domestic water consumption Encouraging use of water-efficient technology Price increases (Wallace and Barrett, 2005) This model seeks to combine a number of approaches in which the use of promotional strategies for attitude change is supported by legislation (for example water restrictions, or the BASIX building code used in NSW), price increases and measures to facilitate the use of water-efficient appliances. The incorporation of water-efficient technology into the model is based on two fundamental principles of social marketing: first, that when you ask consumers to give up something they enjoy (cheap, abundant water) you need to make it easy for them to do so, and secondly, you need to help consumers overcome virtue fatigue by assisting them to make one-off permanent changes (such as installing water efficient technology rather than relying on the long-term good will needed for taking short showers month after month, or even year after year). (Kotler and Andreasen 1996). Home retrofit programs From the perspective of social marketing theory, a retrofit program can be considered to have two advantages: firstly, it offers consumers positive help to do the right thing (for a nominal fee, the plumber visits the home and does all the work) and 3

4 secondly, it allows the consumer to make a one-off permanent change. Once the showerhead is installed, the consumer no longer needs to exert daily self discipline (or worse, discipline teenaged children) to ensure that two-minute showers are the rule. Further theoretical justification for such a program may be found in the work of McKenzie Mohr on consumer-based social marketing (2005). Writing from the perspective of environmental psychology, he stresses the importance of identifying the barriers to consumer behaviour change and removing them if possible: these barriers may include changes that need to be made in order for the [desired] behaviour to be more convenient (2005: 19). McKenzie Mohr s approach recommends a number of other behaviour change strategies, including communication and incentives, but stresses that they will be ineffectual if significant external barriers exist to the behaviour you wish to promote (2005: 20). Clearly, a retrofit program needs to be supported by an attitude change strategy: consumers who are forced to adopt water efficient technology against their will could be expected to sabotage the program. Research into consumer attitudes to retrofit programs Research by Stinchcombe, Wildman and Wiltshire (2005) is consistent with the theoretical approach outlined above, in that it examined the barriers that prevent consumers from installing water-efficient (WE) showerheads, as well as considering what could motivate consumer change. These researchers considered four models for encouraging the installation of waterefficient showerheads: Rebate programs (in which the consumer receives a rebate of part of the cost of installing a WE showerhead) Direct home retrofits (a qualified plumber visits the home and installs a showerhead for a nominal fee) New-for-old swaps/giveaways (the resident is given a new showerhead at little or no cost in exchange for an older inefficient model), and Enhanced marketing (a variety of approaches in which the provider only funds marketing rather than the cost of the device or its installation). They conclude: this research supports the direct home retrofit approach as the most likely to succeed from a community-based social marketing perspective, at least in terms of its capacity to address barriers and motivators identified by residents on the Gold Coast. Both qualitative analysis and direct market research show it to be superior in its ability to systematically eliminate key barriers such as inertia, installation issues and cost factors (2005: 81). The research indicated that rebate and swap programs will be less appealing to residents because they require more time and effort from consumers, who are responsible for obtaining and installing the device and then (in the rebate program) claiming their payment. 4

5 The researchers stress that a well-designed communications campaign would be recommended as part of any program. (2005: 81) particularly as there was evidence of ignorance about WE showerheads and negative perceptions of them. Finally they point out the disadvantage of the retrofit programs: their cost. Not surprisingly, the program most likely to be favoured by residents is also likely to be the most costly per unit for the delivery agency (2005: 81). The estimated average cost to Gold Coast Water per installation is $140, reducible to $120 if residents are charged a $20 fee. (Gold Coast City Council 2005: 9) As a result of this research, the Gold Coast Council has supported a pilot Home Watersaver Service to retrofit 500 homes (Gold Coast Water 2005) and following its success there are plans to retrofit 11,000 homes by the end of The pilot service was promoted by mail, and only 800 mailouts were needed to attract 500 participants (2005: 1), suggesting that if correctly approached, householders will respond favourably to the retrofit option. Moreover, 92% of participants reported that they were very satisfied with the overall experience (2005: 3). Given that water-efficient showerheads can reduce both water consumption and the production of greenhouse gases resulting from heating water (Stinchcombe et al. 2005), we would expect to find their use being promoted by major water providers around the country. Ideally, we would hope to find that all water providers were using the home retrofit model, in view of its advantages as shown by Stinchcombe et al. The institutional economics perspective It is useful to analyse the water provider's decision to offer a retrofit scheme from a political economy perspective, using the techniques of institutional economics (North 1990, Challen 2000). The water allocation decision of the water provider (organisation or agency) is influenced by the incentives, which determine the organisation's existence and profitability. The incentives faced by the organisation are determined by the institutions (rules) applying to the organisation. In the case of water providers, these incentives may have opposing impacts. Specifically, a water provider faces an incentive to maximize revenue by selling water to consumers (for example, Sydney Water receives $1.013 for every kilolitre it sells to consumers, providing it meets the conditions of its operating licence). The provider may also face an incentive to encourage reduced water consumption. For example, Sydney Water s licence requires it to reduce per capita water consumption to 364 l/p/d by 2004/05 and 329 l/p/d by 2010/11. Institutional economics lends support to the view that a utility which faces an incentive to sell water will need an opposing incentive (such as licensing requirements) if it is to engage in an effective and costly conservation program, such as home retrofits. In our research we therefore considered the degree of government ownership and control of the utilities. 5

6 Methodology In order to investigate water providers use of retrofit schemes, we undertook an analysis of the websites of water providers in six capital cities. The research was intended to measure the websites using five criteria: which water providers offered retrofit schemes (availability) the features of the schemes (eg. cost, choice of showerhead, availability of other modifications such as cistern weights, tap flow regulators) the prominence of the scheme in the website (was it advertised on the home page? How many clicks were needed to reach it?) Convenience to consumers measured by the availability of on line registration. status of the water utility, i.e. the degree to which it was privatized and therefore likely to be driven by the need to make a profit. The criteria were chosen to enable us to assess how comprehensive the retrofit schemes were, and how easy it was for consumers to find them and register online. We were then able to compare these aspects with the public/private status of the utility. Our survey was carried out in June 2005 by visiting the following websites: Sydney Water Melbourne Water Brisbane Water SA Water WA Water Corporation ACTEWAGL It should be noted that websites form only one component of the communication strategies used by water utilities. Results The results of our survey are summarized in Table 1. 6

7 Showerhead Retrofit program? Choice of showerheads offered? Other retrofit features included? Cost to householder Retrofit advertised on home page? Retrofit advertised under water/money savings? Minimum number of clicks to reach retrofit info Online registration for retrofit? Phone number TABLE 1: Retrofit programs promoted on water utility websites Sydney Water Melbourne Water Brisbane Water x see note (a) N/a no info on website N/a no info on website $22 (free to pensioners) N/a 50% of retail price of showerhead Adelaide SA Water Perth WA Watercorp Canberra ACTEWA GL x x see note (b) N/a N/a N/a N/a N/a N/a $30 N/a N/a N/a x N/a N/a N/a 1 N/a 2 N/a N/a 4 N/a x N/a N/a x N/a N/a N/a for retrofit? Limitations Time N/a No apparent N/a N/a Time + max Public/ private status of utility State owned statutory corporation is operator State owned. 3 private operators Business unit of Brisbane City Council State owned. Private operator State owned corporation is operator Notes (a): Brisbane Water s Retrofit scheme is partly marketed via the Blue Van, which moves around Brisbane selling water-efficient appliances. (b): ActewAGL s retrofit scheme is also promoted via an ACT government website, and also via a separate Actew website. participants Govt. owned. Joint private/ govt operator 7

8 The survey indicates that three out of six utilities offer a retrofit scheme to assist householders to adopt water-efficient showerheads and other water-saving technology at subsidised prices. It also showed significant variations between the schemes in terms of their extent and their promotion via the internet. Table 1 shows that Sydney Water s scheme makes the most comprehensive use of the internet, according to our measurement criteria. The utility s home page features a button labelled Retrofit (although this could be missed by consumers who do not know the meaning of the word). One click takes the consumer straight to information about the scheme, and on-line registration is available. Brisbane Water s retrofit scheme is slightly different in that it is promoted via the Blue Van, which sells discounted water-efficient appliances. On Brisbane Water s home page a small side button labelled saving water leads to the Saving Water page, which in turn has a similar side button leading to the Watersense Blue Van page, with information about the retrofit scheme. On-line registration is not available. Thus, Brisbane Water s use of the internet to facilitate the adoption of water- efficient technology appears to be slightly less effective than Sydney Water s. The retrofit scheme offered in Canberra by ActewAGL is limited to 2,500 applicants. Of the three schemes, it is the most difficult to find out about via the internet. On the ActewAGL home page there is a Your Home button. Mousing over this reveals a drop down list which includes money savers. The Money Savers page has a Saving Water button, leading to the Saving Water page, which in turn has a Water Savings Rebates button. The Water Savings Rebate page has an indoor water tune-up button which leads to the water tune-up page and details of the retrofit scheme. Four mouse clicks are thus needed to find details of the scheme. Online registration is not available, although there is a phone number for booking. Our survey generally supports the hypothesis that by retaining government ownership and operating control, water conservation incentives are strengthened. Brisbane and Sydney, which retain the strongest government ownership and operational control, both have retrofit schemes. In contrast both Melbourne and Adelaide, with the least government ownership and operational control, do not have retrofit schemes. Canberra lies in between 2. Given the evidence collected in our survey showing Sydney Water as the strongest promoter of retrofit schemes, the institution of the operating license has proved stronger than the institution of water price. In effect Sydney Water has given up some short-term profit (lost to water conservation) for long-term profits (continued property right to extract water). The difference between Sydney Water's strong promotion of retrofit schemes and ACTEW's more limited support can be explained, in part, by Sydney Water's formal requirement in its operating license, while ACTEW faces a less binding government policy target, which is not embodied in legislation or a formal contract. 2 WA Watercorp does not support this hypothesis. It should be noted that a lack of government ownership and operation control does not preclude water access property rights requiring water conservation. 8

9 Privatisation vs public ownership of water utilities One way of managing the water provider's conflict between water conservation (retrofit schemes) and profitability (water price) is to change the nature of the organisation. Private sector water providers are subject to their owner's requirement for a market return on their investment by maximising profit. This organisational form is least likely to implement retrofit schemes (or any other form of water conservation). In contrast, water providers which are an integral part of the government's budget and bureaucracy do not have profitability but rather ministerial responsibility as the major institution (rule) determining their incentives. In between lies the corporatised government agency, which has a board of management separate from (but appointed by) the minister and pays dividends to its shareholders (the government). Australia's urban water providers have moved rapidly from a public sector model towards private ownership in recent years. Brisbane Water is the closest to a public sector organisation as it remains a business unit within the Brisbane City Council. Melbourne and Adelaide are the most privatised with many of their operations subcontracted to private firms. Canberra has subcontracted most operations to a public-private joint venture. Sydney Water and WA Watercorp are government owned corporations and have subcontracted far fewer operations. The privatisation of water and sewerage operations has been associated with some major quality of service failures such as the "big stink" in Adelaide and the cryptosporidium outbreak in Sydney. The role of pricing in water conservation Another way of managing the water provider's conflict between water conservation (retrofit schemes) and revenue raising is to increase the water price (charged to consumers) to compensate the water provider for lost revenue. This trades-off the disincentive of reduced water sold with an incentive of higher price, leaving profit unchanged. Recent changes in institutions (rules) of price setting have shifted the right to set water prices from government ministers to independent (but ministerially appointed) regulatory bodies such as the NSW Independent Pricing and Regulatory Tribunal (IPART) and the Victorian Essential Services Commission. Sydney Water has included lost water sales in its submissions to IPART for price increases. Currently these regulatory organisations are focused more on consumer welfare (through lower water prices) than on incentives to water conservation. We are not aware of the granting of a price increase in compensation for reduced water consumption, although the cost of water conservation schemes is included in price setting. In the absence of such compensation, water providers will protect profits by implementing the least effective schemes (or no scheme at all). The legislation and regulations governing these water pricing organisations could be strengthened by including specific water conservation objectives. For example they could be required to include environmental costs of the water extracted from our 9

10 rivers in their water pricing formulas. The ACT government's water extraction charge is an example. Conclusion The social marketing theory examined in this paper supports the use of effectively marketed home retrofit schemes to assist in reducing household water consumption. The consumer research by Stinchcombe et al., (2005) and the experience of the Gold Coast Water (2005) pilot scheme suggest that there is likely to be wide consumer acceptance of such schemes. However, in our examination of six drought affected capital cities, we found that only three out of six water providers offered home retrofit schemes, and only two out of these three were effectively promoted on the internet, according to our evaluative criteria. When we linked these findings to an examination of the ownership and control of the six utilities we found that our research generally supports the hypothesis that water providers will be more likely to adopt and effectively promote retrofit schemes if: There is significant government ownership and control of the water provider The water provider s license mandates specific water conservation targets. References Australian Bureau of Statistics, 2004a, Water Account Australia , Catalogue Number , Canberra. Australian Bureau of Statistics, 2004b, Environmental Issues: People's Views and Practices, March 2004, Catalogue Number , Canberra. Australian Bureau of Statistics, 2005 Australian Demographic Statistics. December 2004, Catalogue Number , Canberra. Barrett, G., 2004 Water Conservation: The Role of Price and Regulation in Residential Water Consumption, Economic Papers, 23 (3) Brisbane Water, 2004, Annual Report Challen, R., 2000 Institutions, transaction costs and environmental policy: institutional reform for water resources, Cheltenham, Edward Elgar Publishing. Gold Coast City Council 2005 Agenda for Water Sustainability Committee Meeting April 7 Gold Coast Water 2005 Home Watersaver Service Pilot Report. Kotler, P., and Andreasen,, A., 1996 Strategic Marketing for Non-Profit Organisations, New Jersey, Prentice-Hall McKenzie-Mohr, D., 2005 Community based Social Marketing, Water, 32 (2)

11 North, D., 1990 Institutions, Institutional Change and Economic Performance, Cambridge, Cambridge University Press. Stinchcombe, K., Wildman, K., and Wilshire, M., 2005 Showerhead retrofit schemes: a Social Marketing Perspective, Water, 32 (2) Sydney Water, 2004, press release, Dec 12 The Australian 24 June 2004 Wallace, M., and Barrett, G., 2005, Reducing Domestic Water Use: Lessons from Marketing and Economics, Water, 32 (2)