Demand for water is expected to increase by nearly one-third by 2050. At the same time, freshwater ecosystems are degrading at an alarming rate and the risk of water scarcity is rising in several countries. Climate change is expected to further exacerbate pressures on water resources. Addressing these challenges is the focus of SDG6 which sets targets for equitable access, improved water quality and increased efficiency.
Fiscal policies and water pricing can play a key role in this context, helping to incentivize more efficient use of water resources by reflecting the full costs of water supply in prices. Such pricing can support more efficient allocation of water, encourage more circular practices such as increased water recycling and re-use, encourage adoption of cost-effective solutions, enhance productivity of water assets and incentivize the deployment of water-saving technologies.
In 2017-2018, UN Environment carried out a series of country studies in Uruguay, the Philippines and Vietnam, which explore how fiscal and pricing reforms, coupled with improved governance and regulation, can support socially inclusive and sustainable water use. Country studies carried out in 2014-2016 by UN Environment in Mauritius and Mozambique provide policy advice to governments on how to reform fiscal policies including in the water sector, to mobilize public revenues and create fiscal space for green investment, while addressing environmental externalities and social equity issues.
Case: Fiscal and pricing reforms for sustainable water use
A 2017 UN Environment study in Uruguay explores the impact of introducing agricultural water usage charges and contamination fees as a way to raise revenues, increase water-use efficiency, and improve water quality. The study finds that an agricultural water fee would influence producer costs, leading to a reallocation in land use and a reduction of water-intensive uses in agriculture, especially rice cultivation. It would also increase revenue collection and lead to other benefits such as increased hydroelectric production and ecosystem services from lower levels of cultivation.
A 2017 UN Environment study in Vietnam recommends a range of reform options in the water supply and wastewater sector that could improve the effectiveness of current practices. The proposed options include raising average prices of water supply and sanitation services by changing the rate structure to reflect resource costs while maintaining affordability for lower-income households through a rebate or subsidy in water bills or delivered through other public assistance program targeted at poor households.
