Water supply pricing in China: economic efficiency, environment, and social affordability
Updated: 2008-02-18 14:07
The overriding issue in Chinese water management is the increasing cost and scarcity of water. Pricing policy has a potentially critical role to play.
Repeated studies have shown that water and sewerage prices in China are generally too low, and efforts must be made to increase them to encourage efficient rates of consumption. While the first step in price reform is to fully achieve financial cost recovery, the more ambitious objective would be to ensure that the pricing of water and sewerage should reflect the increasing long-run marginal costs of water supply and its disposal.
Based on a set of case studies, this Policy Note focuses on how to set water tariffs specifically addressing the costs of environmental damage in production and consumption, and the opportunity costs of depletion (referred to as marginal opportunity cost pricing) and how to protect the poor in the pricing reform through well-designed pricing or income support measures. It provides a set of policy recommendations to the Chinese government and further suggests that, given the urgency of the problem facing the country, China should look beyond international experience and exercise leadership in the water pricing area before the water crisis becomes unmanageable.