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Sydney Water : Pricing for Sustainability

  • R. Quentin Grafton

    (ANU)

  • Tom Kompas

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.eaber.org/node/21835
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Paper provided by East Asian Bureau of Economic Research in its series Microeconomics Working Papers with number 21835.

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Date of creation: Oct 2006
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Handle: RePEc:eab:microe:21835
Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org

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  1. R. Quentin Grafton & Tom Kompas, 2006. "Sydney Water: Pricing for Sustainability," International and Development Economics Working Papers idec06-10, International and Development Economics.
  2. Crase, Lin & Dollery, Brian, 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, vol. 50(3), September.
  3. John C. V. Pezzey, 2002. "EmissionTaxes and Tradable Permits: A Comparison of views on Long Run Efficiency," Economics and Environment Network Working Papers 0210, Australian National University, Economics and Environment Network.
  4. Mark Hoffmann & Andrew Worthington & Helen Higgs, 2006. "Urban water demand with fixed volumetric charging in a large municipality: the case of Brisbane, Australia ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 347-359, 09.
  5. Hugh Sibly, 2006. "Efficient Urban Water Pricing," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 39(2), pages 227-237, 06.
  6. Anonymous, 2006. "Rural Water Use and the Environment: The Role of Market Mechanisms," Commissioned Studies 8020, Productivity Commission.
  7. Quiggin, John, 2006. "Urban water supply in Australia: the option of diverting water from irrigation," Risk and Sustainable Management Group Working Papers 149857, University of Queensland, School of Economics.
  8. 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.
  9. 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.
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