Effect of Pricing Policy on Water Conservation: A Case Study from Abu Dhabi City, United Arab Emirates

Level: National
Region: MENA Region
Tags: Economic instrument | Urban water supply
Target audience: Industry/business | Local government/municipalities | National government | Regional government | Water authorities | Water companies

The main source of water for Abu Dhabi City is desalinated seawater from the Arabian Gulf. The cost of water production through desalination is higher than other conventional methods of potable water production. Despite the carrying out of several awareness raising campaigns to inform the public of the importance of water and its high cost, the average consumption rate in Abu Dhabi is still one of the highest in the world (636 litres per capita per day). This sets the stage for a worst-case scenario where water is concerned: high consumption rates combined with high production costs. As a result, the Water and Electricity Department (WED) of Abu Dhabi (now a private company)—which is the department responsible for water production, transmission and distribution—decided to change the pricing policy of water. The new policy is based on fixing meters in buildings and charging consumers for the actual amount of water consumed, instead of a system which was based on a flat rate of 50 Emirati dirhams (AED) per month (USD 1 = AED 3.7), irrespective of the amount of consumption.

Baseline situation

The average consumption rate of the city of Abu Dhabi in 1997 was about 318,000 m3 per day, which means that the average per capita consumption was 636 litres per capita per day. The high consumption rate was partially attributed to the existence of wasteful and inefficient water uses, due to the lack of economic incentives in the form of a cubic metre-based tariff. The WED therefore decided to change the pricing mechanism by charging consumers based on the actual volume of water consumed.

The WED then installed water meters in different buildings and houses in the city. As of the beginning of 1997, most of the consumers in Abu Dhabi are charged based on the volume of water that they consume. The new rate is AED 2.2 per m3.

Conflicts arising from the baseline situation

Those who used to were consume the most water before the new metres were introduced expressed the most dissatisfaction with the new scheme.

Description of the applied measure, its introduction and operation

Although the average revenue per cubic meter in Abu Dhabi has increased by 290 percent, it is still less than the real cost of producing and supplying water to Abu Dhabi consumers. Most consumers accepted the increase without any complaint. The revenues from the new price cover only 29 percent of the real cost. However, this increase in price can be considered as a first step towards achieving a fair and economically sound pricing system, which should be based on the real cost of water.

Physical and ecological impacts of the measure

The new pricing system has resulted in decreased water consumption, and has reduced the amount of generated wastewater that needs to be treated. In turn, the reduction of wastewater production involves less energy used for treatment and produces less sludge requiring disposal in an environmentally friendly manner.

Financial and other impacts of the measure on different stakeholders

The new pricing system has increased the revenue from supplying water to consumers. Although the revenue does not cover the full cost of desalinating and distributing the water, it does help the Water and Electricity Department to partially cover the cost of supplying water.

Resilience of the achievements, sustainability of the results

The sustainability of the results depends several factors:

  • an awareness raising campaign targeting consumers;
  • the ability to increase the block rate; and
  • gradually approaching prices that recover costs.

Results obtained

  • Following the introduction of meters and a new pricing policy, out of 90 households surveyed, 66 households reduced their consumption by anywhere from 5 percent to 85 percent; and
  • It was possible to measure changes in consumption because the cubic metre-based variable tariff was introduced two months after having installed the new metres and registering consumption over that same two-month period.

Success factors

  • Installation of meters to all households; and
  • Commitment of various stakeholders to the introduction of the new pricing system.

Indicators used

  • Frequency of households that reduced their consumption by various percentages (see figure).

This measure has been replicated by other cities in the UAE, like Al Ain, Dubai and Sharjah. It can be introduced in other places, as well.

Hani Abu Qdais
E mail: hqdais@just.edu.jo