Design the Water Tariff Structure: Application and Assessment of a Model to Balance Sustainability, Cost Recovery and Wise Use

Abstract

The sustainable management of water resources can be pursued through effective tariff policies capable of discouraging water wastefulness. Increasing Block Tariffs (IBT) represent a method of pricing the water service which consists of providing various tariff ranges, with a unit cost that increases as consumption increases. The definition of the consumption ranges and the relative tariffs must guarantee the right balance between the needs of the users and the need to protect the resource according to 2030 Sustainable Development Goals (SDGs). This study proposes an optimization model useful for ensuring the tariff structure complies with the guidelines dictated by the Integrated Text for Water Services Tariffs (TICSI), an Italian standard that aims to rationalize and level out the fee structure at the national level. The purpose of the model is to guarantee the sustainability of the tariffs for users, protect less well-off households, and, at the same time, to ensure that the fees grow with consumption in an optimal way for the operator, in compliance with the economic constraints imposed by the national authority (ARERA). The model, which consists of a non-linear function capable of minimizing the difference between the tariffs before and after TICSI’ rules implementation, was tested through a case study. Specifically, the optimal water tariffs for each consumption range were defined for an operator in Southern Italy. The proposed model makes it possible to integrate EU guidelines relating to “polluter pays” and the protection of water resources more effectively into the national regulatory framework.

Keywords

• water economics
• water tariff structure
• increasing block tariffs
• optimization model
• water politics and planning
• generalized reduced gradient