Short Description
This document, Deliverable D4.3: Methodology for analysing the socio-economic performance of Household Water Demand Management Policies, is part of the InnWater project (Promoting social INNovation to renew multi-level and cross sector WATER governance). It falls under Work Package 4: Digital tool for water governance and Task 4.3: Domestic water tariff dashboard. The project itself is funded by the European Union's Horizon Europe research and innovation program and UK Research and Innovation.
The primary objective of Task 4.3 is to develop a microsimulation model (MMS) to assess the socio-economic performance of water pricing policies for domestic uses, particularly the Increasing Block Tariff (IBT) scheme. This particular deliverable sets out the methodology for evaluating a single pricing policy, mostly at a municipal scale, and also some elements related to the evaluation of a set of water pricing policies (with the up-scaling operation of the basic/ disaggregated MMS). Its broader aim is to inform public decision-making on water pricing, providing stakeholders with useful and relevant information on socio-economic consequences for both diagnostic and exploratory purposes.
The methodology involves a digital tool with three main features. It is based on econometric estimates of local household water demand functions (using data from Reunion Island for demonstration purposes) which are crucial for identifying (and quantifying) consumption determinants such as family size, household income, and tariff parameters. It employs academic indicators from water economics and other fields of social sciences to measure performance across five key areas related to the European Water Framework Directive (EU-WFD):
-Affordability: assessing whether households can meet their water needs at socially acceptable economic conditions, measured by indicators like the Conventional Affordability Ratio (CAR) and Potential Affordability Ratio (PAR);
-Incentive effect of pricing: measuring the tariff's ability to encourage water conservation, including the impact on consumption and the prevalence of overconsumption due to tariff misperception;
-Economic efficiency: analyzing the welfare gains and losses generated by IBT implementation, using concepts like aggregate (social) surplus and consumer surplus;
-Equity: examining the redistributive impacts of the water pricing policy, including cross-subsidy system (implemented by progressive pricing), social targeting quality, and effects on household income inequalities (e.g., using Lorenz curves and Gini index),
-Cost recovery (quality of the funding): evaluating the financial sustainability of the domestic water (and wastewater) service, by analyzing operating results and financing structures.
And, finally, it is based on French regulations governing the pricing of drinking water and wastewater services which includes some basic principles like the "Water pays for Water" principle (with service funding provided by domestic users and sales rather than through taxation) or the "Universality of service" principle (the latter prevents social pricing of water domestic uses with specific tariff for poor household).
The MMS is structured around five modules: Population, Tariff, Demand, Invoice, and Evaluation, each handling specific data and calculations. It is developed as a web application in Python and Angular. The project plans to release the tool under a gpl-3.0 license, promoting open access and collaborative development.
Part of this deliverable focuses on the "scaling up" operation (which, to the best of our knowledge, is a first) . This aims to transform the MMS from a municipal-level tool to one capable of providing information at larger geographical scales, such as river basins. This expansion is motivated by the need for macro-level understanding, better targeting of support measures, and support for multi-level water governance. The scaling-up design involves encapsulating the basic MMS, creating PopulationResults objects and Aggregators to handle diverse aggregation methods (e.g., weighted average, variance decomposition), and integrating a geospatial database (SQLAlchemy) for French administrative divisions (from basin to IRIS INSEE) to deal with crucial spatial dimension. This comprehensive architecture allows for the central execution of municipal simulations and subsequent aggregation to user-defined administrative levels. Once completed, this expansion will enable the measurement of spatial inequalities and aggregate performance across specific sub-areas, utilizing new geospatial indicators.
The EU-added value of this work lies in its potential to significantly improve water governance related to water price setting. By integrating academic methodology (and knowledge) into operational digital tools, it provides relevant information for diagnosing existing policies, exploring proposed ones and highlighting the actual trade-offs between various policy objectives. Once completed, the up-scaled MMS is also expected to (i) enable better targeting of support measures, by identifying spatial disparities and inequalities, and (ii) facilitate multi-level governance and dialogue among diverse stakeholders by providing a common and shared evaluation methodology.
This work is interlinked with other InnWater project actions as it directly feeds into the development of the broader digital platform (WP4). Ultimately, it supports InnWater's overall goal of promoting social innovation in multi-level and cross-sector water governance by providing robust, data-driven decision support. The ultimate goal is to serve as a Decision Support Tool (DST) to inform public decision-making. Some of the information provided by the DST could also be used to induce and foster citizen engagement in water grovernance.
The primary objective of Task 4.3 is to develop a microsimulation model (MMS) to assess the socio-economic performance of water pricing policies for domestic uses, particularly the Increasing Block Tariff (IBT) scheme. This particular deliverable sets out the methodology for evaluating a single pricing policy, mostly at a municipal scale, and also some elements related to the evaluation of a set of water pricing policies (with the up-scaling operation of the basic/ disaggregated MMS). Its broader aim is to inform public decision-making on water pricing, providing stakeholders with useful and relevant information on socio-economic consequences for both diagnostic and exploratory purposes.
The methodology involves a digital tool with three main features. It is based on econometric estimates of local household water demand functions (using data from Reunion Island for demonstration purposes) which are crucial for identifying (and quantifying) consumption determinants such as family size, household income, and tariff parameters. It employs academic indicators from water economics and other fields of social sciences to measure performance across five key areas related to the European Water Framework Directive (EU-WFD):
-Affordability: assessing whether households can meet their water needs at socially acceptable economic conditions, measured by indicators like the Conventional Affordability Ratio (CAR) and Potential Affordability Ratio (PAR);
-Incentive effect of pricing: measuring the tariff's ability to encourage water conservation, including the impact on consumption and the prevalence of overconsumption due to tariff misperception;
-Economic efficiency: analyzing the welfare gains and losses generated by IBT implementation, using concepts like aggregate (social) surplus and consumer surplus;
-Equity: examining the redistributive impacts of the water pricing policy, including cross-subsidy system (implemented by progressive pricing), social targeting quality, and effects on household income inequalities (e.g., using Lorenz curves and Gini index),
-Cost recovery (quality of the funding): evaluating the financial sustainability of the domestic water (and wastewater) service, by analyzing operating results and financing structures.
And, finally, it is based on French regulations governing the pricing of drinking water and wastewater services which includes some basic principles like the "Water pays for Water" principle (with service funding provided by domestic users and sales rather than through taxation) or the "Universality of service" principle (the latter prevents social pricing of water domestic uses with specific tariff for poor household).
The MMS is structured around five modules: Population, Tariff, Demand, Invoice, and Evaluation, each handling specific data and calculations. It is developed as a web application in Python and Angular. The project plans to release the tool under a gpl-3.0 license, promoting open access and collaborative development.
Part of this deliverable focuses on the "scaling up" operation (which, to the best of our knowledge, is a first) . This aims to transform the MMS from a municipal-level tool to one capable of providing information at larger geographical scales, such as river basins. This expansion is motivated by the need for macro-level understanding, better targeting of support measures, and support for multi-level water governance. The scaling-up design involves encapsulating the basic MMS, creating PopulationResults objects and Aggregators to handle diverse aggregation methods (e.g., weighted average, variance decomposition), and integrating a geospatial database (SQLAlchemy) for French administrative divisions (from basin to IRIS INSEE) to deal with crucial spatial dimension. This comprehensive architecture allows for the central execution of municipal simulations and subsequent aggregation to user-defined administrative levels. Once completed, this expansion will enable the measurement of spatial inequalities and aggregate performance across specific sub-areas, utilizing new geospatial indicators.
The EU-added value of this work lies in its potential to significantly improve water governance related to water price setting. By integrating academic methodology (and knowledge) into operational digital tools, it provides relevant information for diagnosing existing policies, exploring proposed ones and highlighting the actual trade-offs between various policy objectives. Once completed, the up-scaled MMS is also expected to (i) enable better targeting of support measures, by identifying spatial disparities and inequalities, and (ii) facilitate multi-level governance and dialogue among diverse stakeholders by providing a common and shared evaluation methodology.
This work is interlinked with other InnWater project actions as it directly feeds into the development of the broader digital platform (WP4). Ultimately, it supports InnWater's overall goal of promoting social innovation in multi-level and cross-sector water governance by providing robust, data-driven decision support. The ultimate goal is to serve as a Decision Support Tool (DST) to inform public decision-making. Some of the information provided by the DST could also be used to induce and foster citizen engagement in water grovernance.