Urban Water Economics Application of Economics Theories and Policies in the Water and Wastewater Services Urban Water Economics Application of Economics Theories and Policies in the Water and Wastewater Services Authors: SEYEDHOSSEIN SAJADIFAR MOHAMMAD DAVOODABADI Edited by: ALI CHAVOSHIAN Regional Centre on Urban Water Management (RCUWM) under the auspices of UNESCO Co-edited by: SAEED ALIPOOR REZA DOWLATI FARD MOSTAFA KHORSANDI ALI MAZIAKI NILOOFAR SADEGHI Publishing Information سرشناسه : سجادی فر، سیدحسین، Sajadifar, Seyed Hossein ۳۱۳۱ Urban water economics [Book] : Application of economics theories and policies in the water and wastewater Authors: Seyed Hossein Sajadifar, Mohammad Davoodabadi عنوان و نام پدیدآور : [.Edited by: Ali Chavoshian ... [et al Regional Centre on Urban Water Management (RCUWM) under the auspices of UNESCO مشخصات نشر : تهران: مرکز منطقه ای مدیریت آب شهری - تهران، ۳۱۳۱= ۹۱۳۳م. مشخصات ظاهری : ۳۱،،۹۹ ص.: مصور) بخشی رنگی(، جدول)بخشی رنگی(، نمودار)بخشی رنگی(. شابک : 978-600-94092-1-1 وضعیت فهرستنویسی : فیپا یادداشت : انگلیسی. یادداشت : .Co-edited by Saeed Alipoor, Reza Dowlati Fard, Mostafa Khorsandi, Ali Maziaki, Niloofar Sadeghi یادداشت : Application of economics theories and policies in the water and wastewater services آوانویسی عنوان : آربن ... موضوع : آبرسانی شهری -- مدیریت Urban water supply-- Management موضوع : آبرسانی شهری -- ایران -- مدیریت Urban water supply-- Iran -- Management موضوع : فاضﻻب -- جنبههای اقتصادی Wastewater -- Economic aspects موضوع : آب -- استفاده -- جنبههای اقتصادی Water use -- Economic aspects موضوع : آب -- جنبههای اقتصادی Water supply -- Economic aspects شناسه افزوده : داودآبادی، محمد، Davoodabadi, Mohammad - ۳۱۳۳ شناسه افزوده : چاوشیان، علی، ویراستار Chavoshian, Ali شناسه افزوده : مرکز منطقهای مدیریت آب شهری - تهران Regional Centre on Urban Water Management - Tehran شناسه افزوده : یونسکو UNESCO رده بندی کنگره : ۳۱۳۱ ،آ۱س/TD۱،۳ رده بندی دیویی : ۶۹۱/۳ شماره کتابشناسی ملی : ۳۶،۱۱۱۳ نام کتاب: Urban Water Economics مولفین: سیدحسین سجادیفر، محمد داودآبادی ویرایش: مرکز منطقهای مدیریت آب شهری-تهران )تحت پوشش یونسکو( ناشر: مرکز منطقهای مدیریت آب شهری-تهران )تحت پوشش یونسکو( چاپ اول: 8931 شمارگان: 8111 نسخه قیمت: 011111 ریال شابک: 371-011-30139-8-8 نشانی: تهران، خیابان شهید دستگردی )ظفر شرقی(، خیابان کارگزار، خیابان شهرساز، پﻻک 8 مرکز منطقهای مدیریت آب شهری )تحت پوشش یونسکو( تلفن: 99388197 نمابر: 99388191 »حق چاپ برای مرکز منطقهای مدیریت آب شهری تهران )تحت پوشش یونسکو( محفوظ است« Foreword The science of econom ics includes a wide range of theories in the field of mathematic al and statistical methods categorized as econometrics, mathematical economics, engineering economics, and so on. Understanding the economical characteristics of the water services and the developing practical hydro-economic schemes can be a very valuable guide on the application of economic theories and mathematical modeling in water and wastewater utilitie s. In order to reduce and confront the pressures on the limited water resources, implementing proper economic approaches seem to be necessary by taking into account the increasing water demand, aged infrastructures and social issues. Practical understanding of the interaction between water and economics is also crucial for approaching sustainable water governance. Water economics aims to contribute to the development of advanced integrated hydro- economic modeling at different scales from local to national levels, the design and evaluation of water policy and the economics of public water supply, sanitation and wastewater treatment. With this rationale, the National Water and Wastewater Engineering Company (NWWEC) of Iran together with the Regional Centre on Urban Water Management (RCUWM-Tehran) under the auspices of UNESCO, bringing up the mission to transfer applicable scientific knowledge, jointly support this book allowing the formulation of sound economic policies leading to sustainable water management. This book addresses theoretical background of water economics in brief, the changing value of water in its different sectors and the evaluation of economic tradeoffs and also best practices in water and wastewater tariff determination that are ecologically, socially and economically sustainable. It also aims at introducing the application of economic theories and principles in water and wastewater utilities. The audiences of this publication could be water managers and experts, economists, natural scientists and engineers involved in water resources management issues. We hope this book would contribute to better understandings of water economy as a key step to improve water and wastewater management. Hamidreza Janbaz Chairman and Managing Director, National Water and Wastewater Engineering Company, Ministry of Energy of Iran Ali Chavoshian Director, Regional Centre on Urban Water Management under the auspices of UNESCO Preface Water and wastewater utilities in Iran have taken effective measures during the past two decades to increase the population coverage of the safe and secure water supply network. However, the increasing competition among water consumers in different sectors, as well as the social, cultural and political aspects of water economy have duplicated the complexity of water and wastewater services’ management. It is obvious that water and wastewater management boundaries have reached far beyond the technical and engineering issues including economic, politic and also the social-cultural domains. One of the approaches towards confronting the upcoming challenges is to increase the knowledge of water managers and experts in other related fields such as water economics. In some countries such as Iran, water services depend on government subsidies. Therefore, water and wastewater economics have been considered as second hand issues in comparison with engineering subjects. Backed by its capable experts, the Markazi Province Water and Wastewater Utility of Iran has in addition to technical and operational functions managed to contribute to the economic issues of which this publication is a practical example. This publication has been prepared with the aim of promoting the knowledge of managers and experts involved in the water and wastewater services as well as other entities involved in the water industry dealing with economic concepts, viewpoints and policies from theory to practice. This book covers the theoretical background of water and wastewater economics, practical solutions and schemes and also the best practices of some countries around the world. I would not only like to take this opportunity to thank the authors of this book, but also to express appreciation to all those who have been involved in creating such an excellent work. My special thanks are extended to my colleagues at the department of planning and human resources of the Markazi Province Water and Wastewater Utility as well as the National Water and Wastewater Engineering Company (as a fully governmental holding company affiliated to the Ministry of Energy) as well as the Regional Centre on Urban Water Management (RCUWM) under the auspices of UNESCO, without the support of whom this publication could not have been published and distributed among relevant users. Our honor is to serve the society by all means. Abdolreza Khalili Managing Director and Chairman of the Board Markazi Province Water and Wastewater Company Introduction It could be claimed that economics plays an important role in water governance. It seems that neglecting economic considerations may pose serious challenges to the achievement of sustainable water governance. Water economics cover all aspects of water supply and management including, but not limited to, water collection networks and reservoirs, transmission lines and canals, water and wastewater treatment plants, and the production and distribution processes among different users. This book aims at introducing the theoretical background of water economics and discusses the practical schemes and best practices to optimize water tariffs. It also addresses the economic consideration of water allocation as a limited resource to meet the competing demands. It also sheds some light on advances in water economics. The theoretical and applied subjects related to water economics are investigated from different perspectives in this publication. Water has to be considered as an economic good rather than a social service at a fixed rate. Our intention is to not only to address the theoretical concepts of water economics but also to describe their application in water and wastewater services. The challenges and experiences of some countries have also been presented in this book. This publication consists of seven chapters as follows: Chapter one aims to present the prevailing theories and concepts of supply, demand, equilibrium, types of elasticity and the utility in economics. The authors have tried to present contents of this chapter in a concise and precise manner; although diagrams and examples are used to aid understanding the fundamentals and the basic principles of microeconomics. In chapter two, after briefly introducing the methods of estimating water demands in agriculture and industry, the theoretical basics of estimating different types of urban water demand functions and their related parameters have been thoroughly investigated. The objective of this chapter is to show how, by drawing on economic theories, namely the Stone– Geary utility function, the water demand function in human settlements are derived in order to calculate own-price elasticity