Water Pricing, Costs and Markets

This technical report reviews the practices and insights of water pricing and water markets that are two key tools to delivering better water outcomes. Using cases from around the world, the practicalities, benefits and limits of these economic approaches are examined in detail.

The allocation of water across space and time is a key challenge of water governance, especially so in a variable climate. Demand and supply are not always well matched, and deciding on who should receive water, and how much water, can be a difficult choice to make. Given that cost-effective supply augmentation projects are becoming more limited globally, increasingly water demand management strategies – and in particular water pricing and water markets – will need further exploration and development. This report is in two sections. The first half discusses the various principles associated with water pricing and costs and provides a set of recommendations to guide water pricing, and the second half describes formal and informal water markets, some case studies and finishes with a set of insights into further water market development.