Resource valuation and public policy: The case of water pricing

Currently, the infrastructure in many Canadian municipalities that helps to deliver quality water to households and subsequently transport the waste water produced is in need of major capital re-investment. Estimates made by Environment Canada show that some $4.59 billion per year wig be required in order to maintain existing levels of water supply and quality, and to meet future needs over the next 10 years. Governments at all levels will have to make decisions on how to fund such undertakings. One of the options available to municipal officials will be to pass on some or all of these costs to the consumer of the services. One interesting question concerning this policy alternative relates to the willingness of consumers to pay increased water charges. This paper reports on results of a study to probe this question, carried out jointly by Environment Canada and the University of Guelph. The study was based on data collected in a nation-wide cross-sectional survey administered by Angus Reid Ltd.. The survey, which employed a contingent valuation methodology, found that the average willingness-to-pay to assure adequate water servicing was just over $26.00 per month, over and above current water servicing prices. At this level, the municipal water industry would generate additional $3.5 billion annually, a large portion of the extra revenue required. The public policy implications of this finding are discussed in the concluding section of the paper.