The Impact of Price and Information on Water Consumption

The South East of England has been classed by the Environmental Agency as an area of severe water stress. Population growth will continue to increase the demand for water and on-going climate changes mean that residents will have to deal with drier summers and more frequent droughts. At the end of 2010 Southern Water, the utility responsible for supplying water in Hampshire, Sussex and Kent, started a five-year program, known as Universal Metering Program (UMP), to install half a million new water meters in the South East. By the end of 2015, ninety-two per cent of the households in this region will be metered, compared to the current rate of about forty per cent.

The aim of this project is to produce a comprehensive analysis of the impact of the UMP on water consumption. In particular, this project will investigate the behavioural response of households to the introduction of metered charges and to the information campaigns (run by Southern Water while implementing the UMP) raising awareness about the ecological impact of water consumption and suggesting simple ways to cut the water bill.

Thanks to an agreement with Southern Water, we will have access to an unique dataset containing household level information on water consumption, together with detailed information about the implementation of the UMP. We will then exploit specific features of the UMP to produce, by using program evaluation techniques, fresh and sound empirical evidence on whether pricing and information campaigns have a significant and long-lasting impact on water consumption. In order to produce a comprehensive analysis of the most effective strategies to contain water consumption, we will also investigate the behavioural response of households to "colour-coded" bills comparing customers' water consumption to the average consumption in their neighbourhood.

More specifically, to investigate the impact of metered charges, we will exploit the fact that for some households (approximately 35,000) information on water consumption is available before they start paying metered charges. These households have had a meter installed for technical reasons, but are not aware of this and continue paying a fixed fee (i.e unmetered charges).
To investigate the impact of information campaigns, we will exploit the fact that Southern Water is running, in conjunction with the UMP, very localized (street-level) campaigns over a five-year period providing information about the ecological impact of water usage. As these campaigns also affect already metered households, who do not experience any change in terms of pricing, we will be able to isolate the impact of information.
Finally, we will exploit the fact that the colour-code changes discontinuously with consumption and, by using a regression discontinuity approach, will be able to identify the causal impact of peer comparison on water usage.

Furthermore, the introduction of an uniform pricing schedule (for the period 2012/2013, there is a flat cost of £3.058 per cubic meter of fresh-water/waste-water) may negatively affect equity in water consumption. Given that more affluent households tend to use more water, water utilities in USA and Australia frequently use increasing block rate pricing (where the cost per unit increases when consumption reaches certain thresholds) with the dual objective of achieving some reduction in total water use and improving equity among customers. In our analysis we will be able to differentiate the impact of the UMP on water use according to household affluence. We will then be able to discuss how the uniform pricing schedule is affecting equity.

The proposed project aims at providing vital empirical evidence to water utilities, the water regulator Ofwat and policymakers. Given that the South East is the first region within the UK to implement universal metering, our findings are extremely relevant for determining whether the current policy of installing a meter to all households is a cost-effective measure to reduce water consumption and, therefore, should be implemented in other areas of the UK. Similarly, this project will be important to assess whether the introduction of a uniform pricing schedule has a negative effect on equity in water consumption. The findings of our analysis are necessary to understand the impact of the UMP on water use for different types of households and this, in turn, will play an important role in starting a more informed discussion on how the future price structure should be shaped to improve equity in water consumption. Moreover, our project will allow to assess the effectiveness of information campaigns and whether, for instance, they could be successfully deployed to face water shortages.

We believe that involving non-academic users at early stages of the research process provides validation for our research concept and will improve the final impact of our research by helping us to identify research users' needs. For this reason, we are already in contact with some of the key users. In particular, we have developed a close collaboration with Southern Water and, over the next three years, we will have frequent meetings with managers of the company to discuss our research strategy and empirical findings. To facilitate this process, we will also produce interim reports with preliminary findings.

We are already in contact with Ofwat and the Behavioural Insights Team within the Cabinet Office. We are establishing a dialogue with these users to better understand their interests and will present the findings of our research at early stages through meetings/seminars. We plan to further expand our network of contacts with potential users, like the Environment Agency and the Department of Energy and Climate Change (DECC), throughout the course of the research process. At the international level, potential users of this research include the UNESCO-IHE Institute for Water Education, and the UNESCO World Water Assessment Programme.

To address practitioners and policymakers, we plan to write non-technical articles for publications targeting these audiences. For instance, we plan to write pieces on Vox.eu, a policy portal aiming to promote research-based policy analysis and commentary by leading scholars, with an audience of economists in governments, international organisations, academia and the private sector as well as journalists specializing in economics, finance and business. We have already contributed several pieces to Vox.eu on previous research projects. We also plan to produce two video podcasts summarizing the results for generalist/specialist audiences, to be posted on the Public Web Domain of the University of Southampton.

We believe the research is also of interest to the general public. To disseminate the results of the project as widely as possible, we will actively engage with the media, both the national ones (e.g. BBC, current affairs magazines like the Economist, newspapers) and the media covering the local communities where the UMP is implemented. In doing this, we will be supported by the Media Relations Office of the University of Southampton.