The Chartered Institution for Water and Environmental Management (CIWEM) is calling for the Government to develop a “shadow price” for water to ensure that the sustainable management of water fully reflects the value of water, not just for comsumers but also for the environment and the ecosystem services it provides.

CIWEM believes that the price paid for water needs to reflect environmental realities with sufficient political will to price externalities effectively.

CIWEM’s new publication, Regulation for a Sustainable Water Industry, calls for the Government to develop and mandate a “shadow price for water”. This needs to include the true environmental costs of water and should be reflected in abstraction license charges. There should also be a move to charge this to customers following consultation and subject to the provision of appropriate protection for vulnerable sectors of society.

In CIWEM’s view the marginal price of water for domestic use above a socially agreed threshold should be set to recover the cost of its delivery and environmental impact. To do so would require near-universal metering of households and the adoption of rising block or other “smart” tariff regimes – the Institution is advocating the early delivery of both.

CIWEM said the challenge would be in setting a price that balances consumptive and environmental use, but with the extra revenue going towards managing the environment. The proceeds would be used to compensate for loss of water rights and the replacement cost of less damaging water rights and assets. The development of a shadow price would also help to raise the value of new innovative products.

CIWEM considers that both regulatory and market mechanisms have a role to play in achieving the delivery of water, sewerage and environmental services. Shadow prices are already used for carbon and would help as one of a number of measures to deliver a more sustainable water industry.

Chair of CIWEM’s Water Panel, Dr Colin Fenn commented:

“We believe that the full value of water needs to be established, communicated to and accepted by customers as soon as possible, to support the introduction of market-based instruments. Until the true value of water is established and communicated, demand management measures will continue to be under-valued and under-utilised.”