Curtailing water use during drought is costly, but those costs are not evenly distributed. Socio–hydrological modelling shows how water burdens fall more heavily on poor households in response to water conservation policies.
Climate change poses unique risks for water systems. Water scarcity stresses water systems’ capacity to meet the needs of their users, often forcing utilities to rely on conservation measures to reduce water usage or costly water supply expansion. When the costs of these drought response measures are passed on to water customers, they can exacerbate concerns about water affordability.
Economists posit that the efficient price of water should reflect the incremental costs of delivery now and in the future1. Current water prices largely fall below marginal costs of provision, leading to excessive water usage and less revenue raised for financially constrained municipal utilities. But, setting prices at efficient levels may exacerbate concerns about how heavily the cost of water service burdens low-income households. Existing studies suggest that 10–15% of US households face unaffordable water and sewer service2,3,4. Therein lies a conundrum: water is too cheap to encourage efficient usage and investment in reliable long-run supplies, but too expensive for a considerable portion of families.
To date, the link between drought-response measures and their corresponding implications on water affordability has not been addressed. Now, writing in Nature Water, Benjamin Rachunok and Sarah Fletcher demonstrate the unequal burdens that drought-response measures can impose on low-income households relative to their wealthier counterparts in a case study of Santa Cruz, CA5. They do so by developing an integrated model linking utility decision-making in response to real and simulated scarcity events, water storage and delivery, and household water use across income groups.
To deal with water scarcity, utilities have few tools in their toolboxes, ranging from relatively cheap to prohibitively costly: curtailing demand, purchasing water, or building new capacity (via water recycling or desalination plants). Each of these options leads to increases in utility costs that are passed on to households. The costs of curtailment largely stem from price increases needed to pay for revenue loss from conservation, while supply expansion requires investment and construction of new supply infrastructure.
The reason why water scarcity-driven costs are not spread equally across households is related to two fundamental drivers of economic behaviour. First, higher-income households tend to use proportionally more water. Water use increases roughly 1% for every 10% increase in household income6. Second, as the costs of augmenting water supply are passed on to customers, customers react to those price increases by cutting back consumption and that sensitivity to price may depend on income7,8. Whether the households are made better or worse off financially depends on their degree of price sensitivity. So, the ultimate burden of increases in water costs depend on compensating effects of income and responsiveness to price.
One surprising result in the work by Rachunok and Fletcher5 is that curtailment can lower water bills for high-income households — that is, high-income households are made better off during drought — but there is no mitigation–infrastructure combination that reduces water cost burdens for low-income households. This result stems from the fact that high-income households use more water in the pre-drought period and, thus, have more water use to cut back. Whereas the reduction in water use for low-income households is not large enough to compensate for the costs of curtailment (that is, the revenue increase required to balance the utility’s budget) that are spread across customers. A major takeaway is that there is no universally preferred strategy, or ranking of policy options, for dealing with drought when affordability is a concern.
Whether driven by scarcity or not, we do have many policies in place to alleviate concerns about affordability. The US government has rolled out the Low Income Household Water Assistance Program (LIHWAP), the state of California is establishing its own state-wide water rate assistance program, and thousands of utilities have low-income rates to reduce the burden of water costs at the local level. In most cases, household affordability is managed by lowering the cost of water service (for example, rate reductions). However, this can exacerbate overconsumption, as the same behaviour that generates reductions in water use associated with cost increases also leads to increases in usage in response to decreases in costs. Therefore, policies that allow water prices to send strong conservation signals and address affordability concerns through lump-sum rebates can be considered more effective ways to deal with water affordability issues4.
One aspect of Rachunok and Fletcher’s modelling approach is that each of the strategies to deal with scarcity (either curtailment policies, water purchases, or supply expansion) are costly endeavours. An alternative, long-term strategy for utilities dealing with scarcity is pricing in the scarcity of water. With price-inelastic customers (that is, customers whose water consumption decreases proportionately less in response to price increases), utilities can raise prices to reflect the value of water, encourage efficient water use, and raise revenue. Of course, increases in price can have affordability concerns, but as Rachunok and Fletcher show, so do alternative strategies to curtail water use or expand water capacity during drought. The difference, however, is that raising prices increases revenue and thus should be a serious policy option for utilities simultaneously managing scarcity and affordability. Comparative work on the conservation and equity bona fides of pricing policies relative to non-price curtailment and supply expansion is a worthy avenue for future exploration.
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The author declares no competing interests.
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Wichman, C.J. The unequal burdens of water scarcity. Nat Water 1, 26–27 (2023). https://doi.org/10.1038/s44221-022-00016-x