Save water, save money

Financial incentives for those who consume less may spur more to do so
Amresh Gunasingham, Straits Times 5 May 10;

SINGAPORE opened its fifth and largest Newater plant on Monday.

Newater, or reclaimed water, will be used to meet 40 per cent of Singapore's water needs in 10 years' time, up from 30 per cent now.

While Singapore has managed to diversify its water supply beyond reliance on Malaysia and the use of reservoirs by developing its own reclaimed water and desalination plants, the perennial issue of water conservation remains: How to get Singaporeans to conserve water and how to price water right to drive home that message.

This issue has been debated in two recent parliamentary sessions. In one session last month, Minister for the Environment and Water Resources Yaacob Ibrahim did not rule out the prospect of water tariffs going up in future if costly desalination treatment is needed to supply more of our water. The last time water tariffs went up was in 1997.

Earlier in March, Mr Seah Kian Peng, an MP for Marine Parade GRC, threw up a radical idea for a 'social pricing model' to be used in charging for utilities.

He suggested capping a needy family's monthly bill if their water and electricity consumption is consistently below known national benchmarks per capita, the rationale being that this offers a financial impetus to use less. A family living in a four-room flat, whose typical utility bill is around $134 a month, could see its bill cut to about $100 if family members consistently save water, he said.

The idea, which received a lukewarm response initially, raises two important points: whether utility charges can be made more affordable, and whether the time has come to consider financial incentives to get people to save more.

Dr Seetharam Kallidaikurichi, director of the Institute of Water Policy at the Lee Kuan Yew School of Public Policy, says the pricing of water has to take into account its scarcity as well as the cost of supplying and cleaning it.

'We must consider that fresh water from nature is 'on lease' for our household and industrial use. We have to pay to get clean water for our use...and also pay to clean the used water again. This is the only way to ensure the sustainable availability of fresh water for the future.'

Pricing mechanisms around the world range from the use of social tariffs - where minimal amounts of water are provided at low prices to low-income households - to the use of taxes in countries where water is scarce.

In freshwater-rich Canada, the average basic water tariff is around $1 per cubic m. In water-scarce Dubai, it can cost up to $3 per cubic m.

Singapore charges $1.17 per cubic m for the first 40 cubic m of water plus a conservancy tax of 30 per cent, bringing the total to $1.52. Above that amount, the price is $1.40 with a conservancy tax of 45 per cent, or a total of $2.03 per cubic m.

Detractors argue that levying a flat tax of either 30 per cent or 45 per cent regardless of the number of people in a household does not take into account the quantity each member of the household consumes and does not reward households that use less per capita.

It is true the conservancy tax has helped deter water-wasters across all income classes. The latest household expenditure survey conducted two years ago shows that the amount spent by the richest 20th percentile and the poorest differed by just $1.20 (per month).

This means homes with a higher disposable income are not consuming more water even if they can afford it.

Indeed, the 156 litres used by each person here daily compares favourably with the developed world, despite the hot and humid weather here.

Then there are sceptics who argue that the lower cost of producing Newater means the water conservancy tax should be cut. But right now, Newater supplies only 2 per cent of Singapore's drinking water, with the rest going to industrial and other uses. Even with Newater, the fact remains that water is still a very scarce - and valuable - commodity in Singapore. There are also environmental considerations. These are enough justification to retain a high conservancy tax to deter wastage.

But the pricing regime can be improved to encourage water conservation more actively. The key is a pricing mechanism to discriminate better between water wasters and savers. Some tweaks can help households reduce consumption per person further, to reach the target of 140 litres by 2030 or even go beyond that.

Educational campaigns on saving water and requirements that taps and urinals used in homes be rated for water-efficiency have been successful. But they can go only so far. Perhaps the time has come for clearer financial incentives.

One way is to give financial rebates in water bills if a household consistently keeps its water consumption below known national benchmarks over a year.

'This can drive us closer to the 140-litre target set by the Government while also rewarding behaviour,' notes Professor Bhanoji Rao from the Institute of Water Policy.

Another measure is to give income tax credits to those who use less water. This is a practice in New Mexico and Arizona in the United States, says Dr Seetharam.

Some may question the need for such incentives in a country where the average water bill of $32 a month makes up just 3 per cent to 5 per cent of per capita income. This is comparable to the benchmark in many developing countries.

It can also be argued that saving a few dollars in rebates every month from guzzling less water may seem insignificant except to society's most disadvantaged.

But it is not so much the sums that matter. The amount saved from keeping water usage down may be small, but using a financial incentive to get people to reduce usage serves to remind Singaporeans of the value of water to this country.

With the prospect of water tariffs being raised in future, perhaps now is the time to bring this issue into focus and take a serious look at how to tweak the pricing system to encourage every household to keep water consumption down.