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Sydney Water: Pricing for Sustainability

R. Quentin Grafton () and Tom Kompas ()

Microeconomics Working Papers from East Asian Bureau of Economic Research

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.

Keywords: water; pricing; sustainability (search for similar items in EconPapers)
JEL-codes: Q21 Q25 (search for similar items in EconPapers)
Date: 2006-10
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Working Paper: Sydney Water: Pricing for Sustainability (2006) Downloads
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