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What price recycled water?

By Kevin Cox - posted Thursday, 16 March 2006

In a previous article in On Line Opinion I argued for a different approach to funding transport alternatives. One comment was that the idea was good in theory but hard to do in practice. This article shows how the ideas can be used for a “simpler”, but similar, problem of funding and developing water recycling systems. I would argue that the same general approach is a practical way of building sustainable systems for all infrastructure systems.

The goal of any pricing policy for recycled water is long term sustainability of total water supply. That is, the future supply of water (both fresh and recycled) must be sufficient to meet the needs of a growing population. The proposal builds on the objective of sustainability but includes market forces, community co-operation, and price signals, in the mix of controls to achieve the desired outcomes.

Three ways water supplies can be made sustainable are by:

  • reducing demand;
  • increased recycling; and
  • continuing to increase primary supply through desalination.

The third approach is not considered in this proposal because the environmental costs in terms of global warming are too high: nor is obtaining new supplies of fresh water from rainfall as this is deemed not sustainable in the long term.

In most cases recycled water schemes cannot compete economically with mains water supply. However, the capital cost for recycling systems can be subsidised by fresh water mains income, to make it economically self sustaining.

Rather than allocate a certain amount of money from mains fresh water income directly to recycling, it should first be allocated to consumers of fresh water as a reward for restricting consumption. These “rewards” should be given to users to subsidise recycling projects.

Rather than give control of the recycling system to water boards or government appointed bodies, who may have conflicts of interest, give control to a board elected by people who receive water rewards. The electors of the board are more likely to have sustainability as their first priority.

You would then bring market forces into play by giving reward recipients the opportunity of giving money, via the recycling board, to the "economically best recycling system" by making a free market for recycled water.


Demand can be reduced by implementing water restrictions, by voluntary reduction in water use and by increasing the price of water.

For most households the demand for indoor household water is inelastic below a certain base level. That is, people will pay higher prices for essential indoor use of water rather then reduce their consumption. The price that would need to be charged to make a significant difference to essential household use is very high. Price does, however, influence demand for gardens and other outdoor uses such as washing cars.

Communities, by and large, tend to obey water restrictions. This is because the community sees water as a common resource and most will act for the common good while ever they see that everyone else acts in a similar manner.

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About the Author

Dr Kevin Cox is an entrepreneur. Previously he has taught Information Systems in Canberra and Hong Kong and worked with computers for various multinationals in Australia, the USA and Indonesia.

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