Presentation - Workshop 4: Cost recovery, Marielle Montginoul, IRSTEA France

1. p. 1
Adequate incentive pricing: what is an 'efficient' water-pricing mechanism? Which water uses are elastic to price?
OECD, Cost recovery workshop, 31 May – 1 June 2022
Adequate incentive pricing: what is an
'efficient' water-pricing mechanism
(triggering efficient water uses)? Which
water uses are elastic to price?
Marielle Montginoul
OECD, workshop on cost recovery
31 May – 1 June 2022

2. p. 2
Adequate incentive pricing: what is an 'efficient' water-pricing mechanism? Which water uses are elastic to price?
OECD, Cost recovery workshop, 31 May – 1 June 2022
What is an 'efficient' water-pricing mechanism
(triggering efficient water uses)?
Ideally:
• Water should pay for water;
• Water price should reflect all costs incurred in a single bill
(price signal) =
financial cost
+ depletion
+ degradation
• Marginal water pricing
 price
 tax
 No flat part

3. p. 3
Adequate incentive pricing: what is an 'efficient' water-pricing mechanism? Which water uses are elastic to price?
OECD, Cost recovery workshop, 31 May – 1 June 2022
What is an 'efficient' water-pricing mechanism
(triggering efficient water uses)?
The real world:
• A tariff not reflecting costs: (initial) subsidies; low maintenance;
opportunity cost difficult to recover …
• A tariff seeking to achieve many and sometimes conflicting objectives :
cost recovery, social access, water saving …
• The existence of alternative resources: ability to exit from the collective
system  free riding, no more price signal
(the greatest threat: solar energy)
• The challenge to identify the
efficient water pricing structure

4. p. 4
Adequate incentive pricing: what is an 'efficient' water-pricing mechanism? Which water uses are elastic to price?
OECD, Cost recovery workshop, 31 May – 1 June 2022
Which water uses are elastic to price?
Tariff structure
Initial price level
Time frame
Magnitude of change
Type of water use
Presence of alternative resources
Users' income
Depending on :
0
0
Water consumption (m3
)
€/m3
0
0
Water consumption (m3
)
€/m3
high value-added
or perennial crop
low value-added crop

5. p. 5
Adequate incentive pricing: what is an 'efficient' water-pricing mechanism? Which water uses are elastic to price?
OECD, Cost recovery workshop, 31 May – 1 June 2022
To conclude
Water pricing (level + structure) =
a strategic tool (cost recovery …) but complex
=> need to be embedded in a set of measures to reach all the
objectives, especially water saving
Price
Quantity Persuasion
To act directly on water demand To act indirectly on water demand
Agricultural policy / crop insurance policy
Energy policy (electricity, etc.)
Land use planning / land policy

6. p. 6
Adequate incentive pricing: what is an 'efficient' water-pricing mechanism? Which water uses are elastic to price?
OECD, Cost recovery workshop, 31 May – 1 June 2022
Thank you for your attention
marielle.montginoul@inrae.fr