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Sydney Water: Pricing for Sustainability

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Author Info
R. Quentin Grafton
Tom Kompas

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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.

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File URL: http://www.crawford.anu.edu.au/degrees/idec/working_papers/IDEC06-10.pdf
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Paper provided by International and Development Economics in its series International and Development Economics Working Papers with number idec06-10.

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Length: 30 pages
Date of creation: 2006
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Handle: RePEc:idc:wpaper:idec06-10

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Anonymous, 2006. "Rural Water Use and the Environment: The Role of Market Mechanisms," Commissioned Studies 8020, Productivity Commission. [Downloadable!]
  2. R. Quentin Grafton & Tom Kompas, 2006. "Sydney Water: Pricing for Sustainability," Economics and Environment Network Working Papers 0609, Australian National University, Economics and Environment Network. [Downloadable!]
    Other versions:
  3. Lin Crase & Brian Dollery, 2006. "Water rights: a comparison of the impacts of urban and irrigation reforms in Australia," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society and Blackwell Publishing Asia Pty Ltd., vol. 50(3), pages 451-462, 09. [Downloadable!] (restricted)
  4. Jasper M. Dalhuisen & Raymond J. G. M. Florax & JHenri L. F. de Groot & Peter Nijkamp, 2003. "Price and Income Elasticities of Residential Water Demand: A Meta-Analysis," Land Economics, University of Wisconsin Press, vol. 79(2), pages 292-308. [Downloadable!] (restricted)
  5. Renzetti, Steven, 1992. "Evaluating the welfare effects of reforming municipal water prices," Journal of Environmental Economics and Management, Elsevier, vol. 22(2), pages 147-163, March. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. R. Quentin Grafton & Tom Kompas, 2006. "Sydney Water: Pricing for Sustainability," Economics and Environment Network Working Papers 0609, Australian National University, Economics and Environment Network. [Downloadable!]
    Other versions:
  2. Hughes, Neal & Hafi, Ahmed & Goesch, Tim & Brownlowe, Nathan, 2008. "Urban water management: optimal price and investment policy under uncertainty," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 6005, Australian Agricultural and Resource Economics Society. [Downloadable!]
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