2. Water Pricing and Taxes: An Introduction

Water pricing embraces a range of distinct policy instruments that affect the scale and/or the pattern of production and resource-exploitation costs. Ideally, water prices should reflect financial costs of service delivering water infrastructure, environmental costs arising from harm induced to ecosystems and ecosystem services, and resource costs attendant to social welfare losses from not using the water for the most socially beneficial purpose. What is straightforward and unchallenged in economic theory may not translate into clear and uncontested principles to be followed in practice. The information asymmetries, pre-existing water permits or entitlements adhering to different legal doctrines, and hostile reception of water policy reform may antagonise introduction of pricing policy instruments. This chapter provides an overview of the empirical studies from different European countries, supplemented by studies from California and Israel, comprised in the first book section. Although the collection is not meant to be exhaustive or thorough, it offers insightful overview of design principles and choices made to put in place a variety of instruments designed to cope with water pollution, water stress, and hydrological and morphological modifications of water bodies. The majority of the chapters in this section addresses residential and industrial water supply provision and wastewater discharge. The remaining chapters examine the application of EPIs in agriculture, for cost recovery of irrigation services and pollution control; and in hydroelectricity generation, for curbing the environmental impact of water impoundments. The common structure of all showcased studies is a result of meticulous efforts to highlight the scope of the analysed instruments, the embedding legislative and regulatory environment, and the evidence collected so as to substantiate the performance assessment.