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Subsidies to cover the cost

What specific subsidies can be arranged to help the poor cover the costs of water? In this article, Dr. Glenn Patterson discusses subsidies.
© Colorado State University

Whether the system is in private or public hands, rate schedules can be set so that the first, basic amount of water is priced at a low rate, and larger amounts bring higher rates. In addition, specific subsidies can be arranged to help the poor cover the costs.

Ratepayer revenue

Providing safe water can be an expensive proposition. When the true costs of obtaining, treating, and distributing water are totaled up, including costs of monitoring, recording, and reporting on standards compliance, and maintaining the system infrastructure, the cost for each water consumer’s fair share can be high enough that it presents difficulties for consumers with low incomes. No one likes the idea of shutting off water to households with unpaid water bills, especially when international law, and an increasing number of national laws, recognize the human right for access to safe drinking water. The question then becomes, “Who pays for those who need help covering their water bills?” A common approach is to ask large, wealthier consumers to subsidize small, poorer ones. This is done through the use of inverted block rate structures, where the first minimal amount of water a consumer uses (an amount roughly equivalent to the amount needed by a family for basic needs), is charged at a much lower rate than average. Then, for larger amounts used, the rate per unit volume of water goes up, eventually reaching above-average rates that compensate for the below-average rates charged to small users. This inverted block rate structure, sometimes called conservation pricing, has the added benefit of encouraging consumers to conserve water.

Government subsidies

Another way in which low water rates for basic amounts can be subsidized is through government subsidies funded by taxpayers. It can be argued that the public benefits that accrue from providing safe drinking water to everyone justify public expenditures to make them happen. These benefits include improved public health, better productivity, better education, and better sanitation. The subsidies can take the form of government expenditures to pay for capital improvements in water systems, or to help pay for deferred maintenance, or to directly subsidize operations of the water utility.

Charitable subsidies

The many charitable organizations involved in water projects all over the globe represent a third means of subsidizing water for underprivileged consumers. Some of this money is spent directly on projects to develop water points with safe piped water right in villages where the water is needed. Some is spent on indirect projects such as those fostered by Water for People, developing local business entities to ensure sustainable operation of the water infrastructure that has been provided. In all, these charities make significant contributions toward access to safe water for everyone.

Do you think there are other subsidies or ways to lower the cost of water for lower incomes? Post your thoughts in the comments and take a moment to see what other learners are saying and respond to any other comments that resonate with you.

© Colorado State University
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