Economic aspects of sustainable water use: evidence from a horizontal comparison of European cities

This paper addresses the economics of sustainable water use. It focuses on the possibilities for pricing instruments, privatisation and liberalisation to contribute to a (more) sustainable water use. The paper starts with a theoretical discussion analysing the principles of an optimal tariff system, the responsiveness of consumers to price changes, the four principles of an optimal tariff system, concepts such as social and full cost recovery, and the possibilities and desirability of changing governance structures taking into account the specific characteristics of the water sector. Next, the key issues derived from the theoretical analysis are illustrated on the basis of an empirical study on five European metropolitan areas. For these cities, tariff structures and governance structures will be described and analysed in order to assess the degree of sustainability. The comparison of the cities ultimately results in policy recommendations for improving the sustainability of water use in urban areas.