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Supervisor: Prof. Jean-Pierre Villeneuve Evaluator: Prof. Sophie Duchesne Examensarbete i Hållbar Utveckling 103

Vincent Bouré

Urban Water Infrastructure:

arriving in the 21 century st

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Content

1 Introduction ... 1

2 Background... 1

2.1 Water services... 1

2.2 Sustainable Development... 2

3 Methods... 5

4 Results ... 5

4.1 State of water infrastructure ... 5

4.1.1 USA and Canada... 5

4.1.2 Europe... 7

4.2 Solutions... 8

4.2.1 Technical solutions... 8

4.2.2 Financing and Governance... 10

5 Discussion... 13

5.1 Shortcomings ... 13

5.2 Externalities ... 15

5.3 Sustainable water systems... 16

6 Conclusion... 17

7 Acknowledgements... 17

8 References ... 17

Table 1 Drinking water and sewer connection rates for a selection of countries (IWA, 2010)... 2

Table 2 Survivability, Sustainability and Optimality - Adapted from Pezzey 1992... 3

Table 3 Projected water infrastructure costs. Cashman and Ashley 2008. ... 5 Table 4 Most American pipes will come to the end of their useful lives at the same time (AWWA, 2001). 6

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Urban Water Infrastructure: A Sustainable Development Perspective

VINCENT BOURÉ

Bouré, V., 2012: Urban Water Infrastructure: A Sustainable Development Perspective. Master thesis in Sustainable Development at Uppsala University, 103, 23pp, 30 ECTS/hp

Abstract: Urban water infrastructure is facing an alarming funding and maintenance gap worldwide.

Inadequate maintenance, postponed replacement, political choices, increased extreme climate events occurrence rates, demographic shifts, evolving consumption patterns and faulty construction methods are but some of the factors that have compromised the financial and physical integrity of many industrialized countries’ water utilities.

Yet, the stakeholders and externalities, both good and bad, associated with urban water systems would include almost everyone and all major economic activities in industrialised countries.

Over the last decades, many attempts at improving water utilities, both in terms of quality and financial stability have been conducted. While forays in private participation have failed to produce solid evidence that public-private-partnerships are better than public administration, or vice-versa, a number of interesting

‘no-regrets’ solutions have nevertheless been developed.

Considering a water system utility function dependant on both quality and reliability, water system of the future will have to be closer to the original water cycles they are replacing while pricing and technical activities will need to be customized to local needs if water systems are to be considered sustainable.

Keywords: Sustainable Development, Water system, Wastewater, Stormwater, Funding Gap, Public Private Partnerships, Utility Functions

Vincent Bouré, Department of Earth Sciences, Uppsala University, Villavägen 16, SE- 752 36 Uppsala, Sweden

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Urban Water Infrastructure: A Sustainable Development Perspective

VINCENT BOURÉ

Bouré, V., 2012: Urban Water Infrastructure: A Sustainable Development Perspective. Master thesis in Sustainable Development at Uppsala University, 103, 23pp, 30 ECTS/hp

Summary: The constant provision of high quality drinking water and the swift removal of wastewater protect the health and economic activities of almost everybody in industrialized countries. Yet, water a majority of utilities has not been adequately funded or maintained since World War II. Poor maintenance, postponed replacement, political choices, increased extreme climate events occurrence rates, demographic shifts, evolving consumption patterns and faulty construction methods are but some of the factors that have compromised their financial and physical integrity.

Over the last decades, many attempts at improving water utilities, both in terms of quality and financial stability have been conducted. While forays in private participation have failed to produce solid evidence that public-private-partnerships are better than public administration, or vice-versa, a number of interesting solutions have nevertheless been developed.

If water systems are to be considered ‘sustainable’ they will have to be much closer to the original water cycles and economic tools, such as pricing and education, will have to be customized to fit local needs.

Keywords: Sustainable Development, Water system, Wastewater, Stormwater, Funding Gap, Public Private Partnerships, Utility Functions

Vincent Bouré, Department of Earth Sciences, Uppsala University, Villavägen 16, SE- 752 36 Uppsala, Sweden

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1 Introduction

The distribution of clean water and the safe disposal of waste could be considered the most important functions of today’s municipal authorities. It is indeed hard to imagine a thriving city deprived of these services. Improvements in water sanitation during the past century have greatly reduced the incidence of waterborne diseases and its associated mortality and absenteeism, while better sewage treatment help support quality of life and billion dollars industries like fishing and tourism by protecting water bodies, ecosystems and waterfronts.

In short, failures in water infrastructure would have dire effects in every aspect of our lives from transport and commerce to health and leisure.

Urban water transportation systems have been around in one form or another for millennia (notably in Middle Eastern and Mediterranean civilizations), but the water services we know today really took form in the post-World War I era. In the United States, filtration and disinfection treatments started appearing in the late 19th, early 20th century but it was from the 1950s that the vast majority of the hundreds of thousands of piping miles were laid. (EPA, 2002) Europe followed a similar timeline.

Investments in water infrastructure would seem like a great investment: saving and generating fortunes. Yet, many experts are now voicing their concern about a growing gap between this ‘invisible’ system’s needs and the resources it actually receives.

Utilities, agencies and governments from around the world are coming to terms with the fact that, after years of postponement, massive investments will be needed in the water sector in the near future. The causes are many. Today’s citizens have been using infrastructure built by their forefathers without paying the full cost associated with the service, often due to subsidies or other political decisions. Underground networks that are hard to inspect and maintenances duties backlogged by cities spending on other priorities have contributed to the slow but constant worsening of the infrastructure.

To alleviate the burden on public finances, attempts have been made to include private partners in the water sector. However, because of the particularities of an industry relying on a single distribution network making competition difficult to achieve, results have been mixed. Furthermore, government can never fully disengage themselves from this critical service.

On top of all this, climate evolution has hit water networks hard. The increased occurrences of what were once extreme events, be they droughts or storms, have taken their toll and pushed systems to, and in many cases, above their limits.

There are nonetheless many interesting paths to take from here. For one, a lot of technological ameliorations have reduced household consumption and improved network maintenance operations.

Better informed citizens and urban planners can now make smarter choices. Still, it is green structures which can create links between the natural water cycle and modern cities that could be called to play a major role in the future. There are indeed more and more exciting urban renewal projects that include water retention, more permeable surface, rain water management and various forms of in situ treatment.

Water treatment and distribution appear poised to make the leap in the sustainable development era and help balance our societies’ social, economic and environmental interests. The obstacles ahead are not to be underestimated.

This paper will try to formulate guiding principles that could be used as inspiration for the sustainable urban water systems of tomorrow by going over the knowledge gained through experience and looking at promising pilot-projects. The focus will be on the challenges encountered by municipal water systems in Western Civilization (North America and Europe mainly). Emphasis will also be placed on extreme events that push water infrastructures to and beyond their limits such as storms, floods and sea-level rise.

Droughts and water shortage, while less covered in this paper, are still important events that should be considered when designing urban water systems.

First, water services and sustainable development, this paper’s two central themes, will be presented and defined. Next, the situation of water infrastructures in North America and a number of European countries will examined along with a selection of proposed actions and solutions. Finally, there will be a discussion about the sustainability of the sector and its future.

2 Background

2.1 Water services

Water services can be divided in two main systems:

drinking water and wastewater. Drinking water is first brought from a source to a treatment plant that will render it safe for human consumption before

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2 being propelled through a network of pumps, pipes and valves to reach homes, shops and factories. Once water has been used, it is returned to a wastewater treatment plant through a different network. This time, the water is depolluted until it is considered suitable for the environment and recreational use.

Stormwater is either collected through the same pipes as wastewater (combined sewer) or through a parallel network dedicated to transporting rain water (separated). Nowadays, planners tend to go for separated systems to reduce the risk of harmful overflows during major rain events. When a combined sewer is brought beyond its capacity, it will reject a mixture of untreated rain and sewage in the city and its adjoining lakes and rivers. On the other hand, separated networks allow raw sewage to be protected from storms. In this case, rainwater is rarely treated. (Brière 2006)

The useful life of water systems’ numerous elements varies from around 20 years for mechanical and electrical components, to 50 years for plants and 75 years for pipes (EPA 2002).

According to the International Water Association (2010), most citizens of Western Europe countries were connected to water services (Table 1).

Likewise, a majority of Canadians were connected to water distribution (88.9 %) and sewer systems (87.1

%) (Environment Canada 2011). Buildings isolated from the main systems usually draw their water from private wells and discharge in private sceptic tanks.

Country Drinking water

connection rate Sewer connection rate

France 100 % 95 %

Germany 99.2 % 96 %

Scotland 96.6 % 91 %

Spain 100 % 92 %

Sweden 89 % 85 %

Table 1 Drinking water and sewer connection rates for a selection of countries (IWA, 2010)

There are many sources of potential water infrastructure failures. The most common, spectacular and impactful incidents involve water mains, the biggest pipes in a distribution network These can be built from various materials, from cast and ductile iron to asbestos-cement. As varied as the types of pipes are the stresses they are subjected to.

Firstly, the very characteristics of the soil they are buried in will have a profound impact on the pipes’

lifetime. Electro-chemical processes driven by, amongst other things, moisture, bacteria and oxygen- levels will cause corrosion pits that deteriorate structural integrity. Similarly, the very water that

flows in the distribution network might exacerbate the corrosion’s progression by its pH levels or free chlorine content. Concrete elements will experience a similar attack on their structure if a soil’s chemical composition or pH level is not hospitable. Secondly, exterior loads like those imposed by land traffic, unrelated construction work, shifting soils, poor foundations, freezing water or thermal contraction might twist and bend pipes beyond their structural capacity. Finally, manufacturing defects or inadequate installation might doom an element before it is even completely buried. (Rajani and Kleiner 2001)

Different actions can be carried out once it has been determined that a system needs attention from signals such as changes in water quality, worrisome structural integrity, increasing water loss through leaks, sudden pipe breaks, equipment malfunction, changes in demand patterns, etc.. Building a new element can help extend a system’s reach (serve new customers) or improve its capacity and resiliency. Replacing an existing element with a new one can advance or simply restore the system’s original performance level. On the other hand, maintenance (localised action on existing elements) is usually performed in order to maintain a certain service level. All of these actions can either be planned (through monitoring or forecasting) or unplanned (in case of sudden breaks or other extreme events). (Haidar 2006; Fauquert 2005) Combined sewer overflows (CSOs) are another growing concern in the face of climate evolution and urban growth. Combined sewers are designed to let water escape untreated to the receiving rivers or bodies when their holding or treatment capacities are exceeded. This will prevent basement flooding but will release raw sewage to the environment. (EPA 2004)

Traditionally, water services have been financed by upper governmental grants, user fees (earmarked or not), a variety of municipal property taxes, new development charges and loans (Kitchen 2006).

Pipes have historically been paid by tariffs, user fees and taxes while money for bigger ‘fire-and-forget’

investments like treatment plants came from federal grants and loans (EPA 2002, WIN 2001).

2.2 Sustainable Development

Since sustainable development was given its famous definition in the emblematic 1987 ‘Our common Future’ (WCED 1987) report, it has gone through numerous growing pains. The United Nation’s Brundtland Commission made an ambitious call for

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3 the balancing of the “right” to develop with environmental protection and both intra- and inter- generational justice. The answers came in many forms.

Sachs (1999) blames the UN definition’s vagueness for the fact that it gradually lost all meaning. The needs and timeframe mentioned are never defined, so anyone was left to interpret them in their own way.

Furthermore, the concept of continuous economic growth is validated and its externalities are, once again, barely accounted for. Sachs believes it was nothing more than a new coat of paint over the same classical capitalist race for economic growth, which, as he puts it, has shown its weaknesses and limitations despite being applied only by a minority of humanity.

Even less critical organisations, such as the World Bank, cannot help but be confused. Is a constant economy sustainable, or must it keep growing? What kind of capitals should be included in the calculation of overall value? Should every source of natural resources be protected, or should the focus lay on the overall stock? From which threshold is an economy considered sustainable or even survivable? Is it enough that everyone has food and shelter, or should the target be the American living standards of the 1990s? How to define future needs? How far into the future should we look? Should values not linked to humanity be considered (i.e. the intrinsic value of nature)? The World Bank finally defined sustainability as ‘non-declining per capita utility’

meaning that the average quality of life of individuals should at least be constant, but not necessarily optimized (Table 2 Survivability, Sustainability and Optimality - Adapted from Pezzey 1992). Yet, they themselves agree that it is a subjective notion.

(Pezzey 1992)

TIME

UTILITY 1

2 3 4

Table 2 Survivability, Sustainability and Optimality - Adapted from Pezzey 1992

In Table 2 Survivability, Sustainability and Optimality - Adapted from Pezzey 1992, utility is on the vertical axis, time is on the horizontal axis, and line 4 represents the threshold below which the general welfare is deemed too low to assure the survival of humanity. According to the World Banks definition of sustainability, Scenario 1 is optimal1 but is neither sustainable2 nor survivable3 in the long run.

Scenario 2 would not be optimal or sustainable, but it is survivable while Scenario 3 would represent the sustainable and survivable (but not necessarily optimal) progression. The onus is then on economic planners and leaders to adequately define utility and make sure that a constant growth like the one presented in Scenario 3 does not turn into a ‘peak and crash’ catastrophe like Scenario 1.

Other classical definitions include Solow’s for whom sustainability is a constant stock of capital enabling constant consumption. As natural resources are depleted, man-made assets must take their place.

Solow assumes that technology will always be able to convert one to the other without significant losses and transaction costs. Pearce, however, warns that natural resources depletion might reach a point of no return after which no amount of human genius could bring back the fragile natural balance. His utility function, which he believes should remain at least constant, is dependant of both consumption and the renewable resources flow. (Pezzey 1992)

A key concept of modern sustainability theories is ecological services. The complex interaction between elements of the biosphere, the atmosphere, the hydrosphere and the lithosphere shape the world we know today. Substances are combined, decomposed, transformed and transported endlessly in the cycles of life, water and carbon to create an environment that can sustain life as we know it. For example, wetlands provide, among other things, shelter and nutrients for wildlife, protect the coast from sea storms and filter water running down from the mainland to the adjoining water body. Yet, in the classic human economic theory, it might be next to worthless until a beach is created, a boardwalk built and summer

1 Optimal: The scenario with the greatest area under its utility function curve is optimal.

2 Sustainable: A scenario is sustainable if its utility at any given time is never inferior to its utility at any point in the past.

3 Survivability: A scenario is survivable if its utility never goes below the critical threshold (represented by line 4 in Table 2).

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4 houses erected. Man built capital is replacing wilderness in an effort to better our societies, economies and general welfare. Still, as has been illustrated above, nature is far from worthless: it produces oxygen, processes refuse and pollutants, regulates climate, creates food, etc. Efforts have been made to appraise the value of what nature provides to human society in order to help us make better choice in our future development. It is however quite difficult to evaluate economically things on which all life depends and for which man made substitutes might not exist (like maintaining the CO2-O2 balance or making water go through its cycle). A popular method consists in polling experts or residents about their willingness to pay to preserve a certain area of pristine nature. This value is then added to the economic value that could be extracted by exploiting the resources to obtain the full value. Research results yield an estimated yearly value for ecological services that varies between USD 16 and 54 trillion (in 1994 dollars) with an average of 33 trillion.

Considering that the sum of all national GDPs reached USD 18 trillion in 1994 gives an idea of the order of magnitude. The evaluations of ecological services are most likely underestimated considering the impossibility of substituting so many natural systems and the incompleteness of most studies. The point still remains that it is ill advised to see wilderness as under-developed or worthless.

(Costanza et al. 1997)

In recent history, recent in geological terms at least, a new force has added its weight to the equation:

humanity. Humanity has in fact become the driving factor in climatic and environmental evolution. So much so that our era has a new geological moniker:

the Anthropocene. The biggest risk associated with this power is that humanity can now break the balance mechanisms that allow the planet to remain in a relatively stable state for millennia. The problem is that once some thresholds are crossed, environmental degradation becomes permanent and might even slip in a vicious spiral of negative feedback effects. The Stockholm Resilience Center has identified 10 critical states and tried to quantify both the range in which they can regulate themselves and the current level of stress they are subjected to. Of the 8 elements they have studied so far, 5 were still within acceptable levels but biodiversity losses, climate change and disruption of the nitrogen cycle were deemed to be beyond nature’s ability to balance them. This example was global, but the concept of ecological resiliency can also be applied locally. (Rockström et al. 2009)

Applying sustainable development’s famous equilibrium of economic, ecological and social interests could be seen as quite problematic in a highly urbanized environment in which all signs of pristine nature have long been buried beneath concrete or overshadowed by skyscrapers. Yet, the density and the synergy potential between all actors make cities an interesting setting for new infrastructure and urban planning concepts. The economic and social benefits of urban life are numerous and include, amongst others, economies of scale, vibrant cultural scenes, a concentration of institutions, high education levels and easy socialization. The challenge thus lies in the inclusion of natural capital as a driver for progress in socio- economic activities. With respect to water services, their benefits are quite important, especially in terms of health, hygiene and overall safety. Yet, creative measures can be taken to liken the urban infrastructures to their natural counterparts and, in turn, improve the quality of life and lessen the financial burdens of a municipality. Moreover, when considering the city as a part of a greater region (such as a watershed) objectives can be set to turn the city in a low to positive impact zone (i.e. water going through a utilities system would come out cleaner than when it was acquired) or even a closed-loop. To achieve such targets, urban planners and leaders can levy tools ranging from different fields such as technology, spatial organization, market incentives and citizen behaviours. (Camagni, Capello and Nijkamp 1998)

Efficiency is at the heart of many sustainable development policies. Yet, despite our current economy being more efficient then it has ever been in terms of input-per-output ratio, it has never consumed more natural resources. Unlike artists who can still produce new masterpieces despite playing a classical piano that has not received new notes for centuries or painting on canvas as limited as their masters’, economists argue that the proverbial pie must constantly get bigger if everyone is to receive an interesting piece. Thus, to be truly sustainable, a project should be evaluated on its ability to produce well-being on the smallest amount of resources possible and a society should self-impose a limit on its total throughput. Such a limit, once adopted, could spring the genius and creativity of humankind in directions currently unfathomed. Closed loop processes, in which one’s refuse and waste are transformed in resources by another, and nature- imitating projects would shine in a context like the one described in this paragraph. (Sachs 1999)

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5 According to Rijsberman and van de Ven (2000), there are four main approaches that could be employed to design a sustainable water system. First is the ‘ecocentric’ philosophy which assumes that nature is sustainable and aims to create systems that are as close as possible to the natural water cycle.

Secondly, designers could base their decisions on scientifically proven pollution or consumption thresholds within which operation is deemed to be sustainable. The difficulty therefore lies in establishing the boundaries. Thirdly, a process based on public participation and stakeholders contribution can produce a set of exhaustive conditions to respect.

Finally, a model-based multicriteria analysis can help in weighting different concepts against each other.

The authors suggest that managers use a combination of approaches and modify their decision-making process as the project evolves. They also recommend that an effort should be made to have all stakeholders represented, that impartial experts be present at every step to keep the debate objective and that while consensus is a noble undertaking, a project should aim to be bearable by most. The authors really insist on the quality of the process as a way to bring about a good result.

3 Methods

Drawing from published research and case studies, this paper will focus on building links through the various elements of both the problem and solution with sustainable development theories as an overarching theme.

4 Results

4.1 State of water infrastructure

Cashman and Ashley (2008) studied the projected financial needs of the water infrastructure sector in a number of OECD countries. They recognize four main factors that will influence the magnitude of the required investments: population dynamics (growth, higher water standards, changing urban profile), environmental forces (climate evolution, extreme events, pollution control), political trends (new revenues expectations, competing priorities, quality of governance) and technological development (new techniques, better efficiency). Of those, only the latter is expected to have positive effects on water finances. The authors are also apprehensive of the fact that many of the projected costs released by national authorities do not consider these four factors’

impact as much as they should. They also came across some alarmingly low annual replacement rates

such as those in London, UK (0.01%) and Munich, Germany (0.8%). However, their review allowed them to notice a sizeable gain in industrial water use efficiency, notably in Japan. They conclude that, to reach an acceptable performance and maintenance level, high income Western countries will first have to spend between 0.65% and 1.35% of their GDP on their water services by 2025.

Required investment by 2025 (USD billion)

Australia 9.95

Canada 15.74

France 25.84

Germany 35.84

United Kingdom 27.96

United States 167.63

Table 3 Projected water infrastructure costs. Cashman and Ashley 2008.

4.1.1 USA and Canada

In the United States of America, most houses are connected to one of the 54 000 community water systems and one of the 16 000 municipal wastewater treatment plants through an estimated 600 000 miles [960 000 kilometres] of sewer pipes. Over 110 000 water distribution systems also exist on school campuses, campgrounds, and other ‘communities’.

(EPA, 2002)

The EPA (Environmental Protection Agency), AWWA (American Water Works Association) and WIN (Water Infrastructure Network, a lobbying group) all raise alarm flags regarding the troubling state of both the drinking water and wastewater systems. The EPA, in a 2002 report, is quite blunt in its assessment of the American water infrastructure: a lot of elements are coming to the end of their useful life simultaneously, population dynamics will increase strains on utilities, treatment efficacy is dropping, support for research and development is dwindling, and many smaller communities do not have the financial strength to face the projected rise in water related expenses. (EPA 2002)

The American Society of Civil Engineers (ASCE, 2009) joined the choir with a D- evaluation of both drinking water and wastewater systems (A being best, E worst). The authors attributed most of the blame to a severe lack of funding and noted a disquieting lack of resiliency from both systems. ASCE’s global assessment of American infrastructure was a slightly higher D.

The timing of the replacement windows is particularly worrisome to the American observers

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6 (Table 4 Most American pipes will come to the end of their useful lives at the same time (AWWA, 2001)). In the absence of action, the proportion of pipes considered in poor condition or past their expiration date will increase from 23% in 2000 to 45% in 2020. (EPA 2002)

Installation

Period Pipe Life

Expectancy End of Useful Life

Late 19th c. 120 ≈2010 – 2020

Post-WWI 100 ≈2020 – 2030

Post-WWII 75 ≈2020 – 2030

Table 4 Most American pipes will come to the end of their useful lives at the same time (AWWA, 2001)

AWWA (2001) adds that, on top of the rising pipe maintenance and replacement costs, there are also treatment plants in need of upgrades. These plant overhaul cycles are expected to require massive investments every 20 years or so. Yet, the authors stress the fact that this looming increase in spending is not caused by poor management on the part of utilities but is rather a result of the economic and demographic boom of the 20th century and the nature of water infrastructure. It is now up to every municipality to assess its situation and find a way to address it.

However, they are not all equal before this task.

AWWA (2001) describes the delicate cases of Rustbelt or Sunbelt cities like Philadelphia who experienced great post-World War II growth before seeing their population slowly migrate to other areas.

These cities now have to replace infrastructure they don’t even fully use anymore, and they have to finance this with a diminishing taxpayer base. On the other hand, younger West Coast cities like Seattle (Washington), Tacoma (Washington) and Portland (Oregon) could see their water services replacement and repairs expenditures multiply by a factor of up to 4 or even 7.

The EPA (2002) projects that this conjunction of circumstances would require an additional nationwide investment (over 20 years) of 73 to 444 billion in American dollars (point estimate of USD 224 billion).

The higher end of EPA’s projections matches WIN’s (2001) demands for an extra USD 23 billion a year over 20 years (USD 460 billion total).

Yet, these expenses could be eclipsed by the potentially immense costs prompted by new stormwater and sewer overflow regulations (AWWA, 2001).

32 states currently have cities in which combined sewers were built. The majority of these 9348

systems are located in 746 communities in the older towns around the Great Lakes and in New England (North East). It is estimated that they discharge around 850 billion gallons (3300 billion litres) of untreated raw sewage in their environment every year. This represents 6.9% of the total volume of water that transits through American sewer systems.

Combined sewer overflows present a major risk for ecosystems, public health and the tourism industry.

(EPA 2004)

In a 2011 report, the EPA tried to illustrate the varied impacts climate change could have on American water systems. In the East Bay (California, South- West), rising sea levels and more frequent extreme weather events will require greater investment in flood control as events that previously had a 100 years return period, could come back as often as every 10 years. In Seattle (Washington, North-West), new infrastructure is designed with an extra security factor to account for potentially greater peak storm events. Municipal authorities in New York City (New York, North-East) called for more green structures and increased reservoir capacities to help contain the projected rise in combine sewer overflows. Finally, Spartanburg’s (South Carolina, South-East) utility managers were also worried about their sewer system’s capacity to handle the expected acuter rain events.

In the Metropolitan Boston area (North-East), the economic value of property damage caused by river floods is expected to double. The increase in inundations and extreme rain events is also projected to greatly complicate matters for road users. (Kirshen, Ruth and Anderson 2007)

In Canada, Gaudrealt, Gagnon and Overton of Statistics Canada (2008) have established that drinking distribution systems and their associated pumping stations and treatment plants are worth a total of CAD 32.2 billion and are, on average, 14.8 year-old (which represents 40% of the average useful life of the elements in the system). On their part, wastewater treatment plants are valued at CAD 24 billion with an average age of 17.8 years (63% of average useful life) and sewer treatment facilities are worth CAD 36 billion with an average age of 17.9 years (53% of average useful life). Most Canadian water infrastructure is municipal.

Toronto, Canada’s largest city, has experienced eight once-in-25-year storms in the 25 years between 1986 and 2011. This has caused thousands of flooding incidents, caused billions of dollar in damage (including CAD 500 million in one single 2005 event – the second most expensive natural catastrophe

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7 recorded in Canadian history) and prompted the city to upgraded sewer systems that were practically new (under 20 years of age), much to the dismay of its population and administration. (Kessler 2011) In Montréal, municipal authorities got a wake-up call when they received a 2011 update of the 2003 assessment of their water infrastructure. Physical examinations, which were not conducted in 2003, painted a much grimmer picture than the one derived from interviews and theories. The required yearly investment in infrastructure replacement doubled from CAD 200 million to CAD 400 million.

Furthermore, the 2003 target wasn’t even met, compounding the funding gap. The annual replacement rates in water and wastewater systems were found to be a meagre 0.9% and 0.6%

respectively. This is way off the 1.5% rate that would prevent the average age from going up. The fact that nearly 8% of the inspected pipes were found to be in advanced state of disrepair or imminent failure is also worrying when considering the replacement rate.

Inspection frequencies were also deemed inadequate.

All this results in Montreal losing 40% of its produced water, though leaks and other unaccounted activities, and presenting a main failure rate of 29 breaks per 100 km, higher than Toronto (26) and most big Canadian cities. Also, the stormwater reservoirs cannot cope with the increase in both sewer water production (due to growth) and extreme events occurrence. Finally, it was noted that most of the system lacks redundancy, meaning that local perturbations could have global impacts as shutting down one part of the network could isolate a very large number of customers. (Montréal 2011)

Kitchen (2006), in an evaluation of Canadian municipal infrastructure, revealed a tendency to exclude future replacement needs in budgets, inadequate fees and tax structures, a planning horizon limited by electoral considerations and failure to capitalize on potential savings by coordinating infrastructure works. Also, reliance on upper governmental assistance grants is deemed counterproductive as it creates an illusion of affordability for projects that would otherwise too expensive. Combined with the omission of replacement costs from operating budgets, this can lead municipalities to dig themselves in too deep of a financial hole. Similarly, underpriced services lead to overconsumption and an artificially high demand which, in turn, require new capital investments. As an example, the author cites the province of Ontario in which federal grants have allowed municipal authorities to charge fees that only amounted to 64%

of the real costs of running drinking and wastewater

systems creating a sizeable funding gap that precipitates the networks’ degradation and throws cities into a spiral of ever rising operation budgets and capital needs.

4.1.2 Europe

The British water industry was pushed into the limelight when the Thatcher government called for its privatization, in 1989, in hopes of improving efficiency and shifting the responsibility of financing and meeting the new European environmental standards to the private sector. The existing English and Welsh public companies were auctioned off at reduced prices and saw their debt written-off to start their new life. However, reports from the early 2000s painted the picture of an industry in disarray that had spent the past decade extracting as much monetary benefits as possible at the expense of key duties. The market created by the British government was far from competitive as the 10 new private companies effectively signed deals that bestowed them 25 year- long monopolies. To control the sector, three regulating agencies were set-up: OFWAT (Office of Water Services) was to oversee the financial sustainability of the companies and fix price caps while DWI (Drinking Water Inspectorate) and NRA (National Rivers Authority – now the Environment Agency) were to monitor water quality and rejected pollution respectively. However, these watchdogs were highly dependent on information given by the utilities themselves. It took only a few years for the public and government to realize that the main beneficiaries of the new industry were its shareholders. By declaring inflated capital investments needs, the water utilities were granted higher price caps resulting in 46% increases of residential consumer bills. Yet, the companies managed to ‘save’ millions of pounds on infrastructure programs but redirected the economies to their dividend payouts. Furthermore, poor customers were disconnected from the water supply despite their precarious situations, and there was a marked increase in the occurrence rate of health hazards and sewer flooding. This, compounded by reports that the state of the underground networks was worsening (the proportion of water mains considered in poor condition rose to 11% in 1998, from 9% in 1993) led to a serious credibility and trust crisis. In 1995, when utilities asked customers to reduce their water consumption during a drought, the public’s response was minimal. Similar pleas had been emphatically received when water services were publicly run. To top it off, a little over a decade after acquiring debt-free utilities, some owners are trying to find a way to exit the industry by selling the assets

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8 and their new (and imposing) debts back to publicly managed bodies and even the environmental gains originally attributed to the privatization are now thought to be a product of the new European Laws.

(Lobina and Hall 2001; Dore, Kushner and Zumer 2004).

In France, over 850 000 km of water distribution and 250 000km of sewer piping are installed. These assets are evaluated at 85 billion Euros with an estimated 1 to 2 billion annual maintenance tab.

(Maresca and Poquet 2005)

In 2005, 58% of Frenchmen believed water to be a scarce resource. The same number was 9 points lower in 1996. Additionally, the proportion of citizens concerned by their own residential water consumption rose from 66% to 77% in the same time frame. However, despite the interest, Frenchmen have difficulty evaluating the real price of water services: 69% simply had no idea, while those who pronounced themselves overestimated the cost by 50%. Finally, 58% think that water is ‘rather expensive’. (Maresca and Poquet 2005)

More than 75% of French water services management has been transferred to private corporations in an effort to improve efficiency and alleviate the financing burden on the government. However, the industry is greatly subsidized, so much so that only a third of infrastructure investments come from private pockets. Furthermore, competitive bidding and international bidders on contracts are either rare or simply not allowed which makes it hard to introduce regulation and improvement through market forces in an already monopolistic industry. (Dore, Kushner and Zumer 2004)

On their part, German planners find themselves in front of a different problem: demographic decline.

Coupled with increased suburbanisation, meaning more but smaller households, this puts the German water system in a state of underutilization which leads to increased health risks due to longer stagnation periods. Furthermore, it creates strange situations like the need to geographically expand a network that isn’t used at more than 50% of its capacity. The declining taxpayer base, which will, on top of everything, deny any potential economies of scale, also burdens the remaining citizens with the responsibility to shoulder the whole oversized network themselves. (Hummel and Lux 2007) Yet, investments of 12 billion Euros will be needed over more than a decade just to keep the urban wastewater systems in running order. Of those annual 12 billion, 5.5 will go to operation and

maintenance alone while the remaining 6.5 billion will be spent on new infrastructure. Moreover, stricter quality and environmental standards, coupled to the apparition of new pollutants in waste water and sources, such as pharmaceutical substances, are expected to further increase the bill. (Hiessl, Walz and Toussaint 2001)

A paradox of water efficiency and economy is experienced in many European capitals. Since the 1990s, water consumption went down due to price increases, technological breakthroughs and shifts in consumer behaviour, but infrastructure-related expenses account for up to 80% of the water price.

Thus consumption levels and operating costs are only marginally linked while revenues are completely dependent on consumption. This forces utilities to increase the price of treated water to finance their infrastructure need, effectively punishing eco-friendly consumers and technologies. (Poquet 2006; Hummel and Lux 2007)

4.2 Solutions

In the face of this complex and daunting situation, solutions, both technical and managerial, have been developed to answer the myriad of challenges presented to today’s water sector.

4.2.1 Technical solutions

In New York City, the Department of Environmental Protection (DEP) is looking to further develop Staten Island’s Blue Belt program. Adjusting the infrastructure to exploit the natural features of the island allows more than a third of stormwater to be bypass the sewer system and go through natural channels, some of which have been engineered to improve their holding capacity or treatment abilities.

The system was credited with savings of USD 80 million in comparable infrastructure, not to mention the floods and combined sewers overflows that were prevented. (EPA 2011)

In an interesting twist on the Blue Belt program, Spartanburg Water (South Carolina) has elected to leave the existing pipes in place when upgrading the networks and use them as runoff storage reservoirs during extreme events. (EPA 2011)

Kirshen, Ruth and Anderson (2007) explored three different approaches when it comes to dealing with climate change adaptation in the Metropolitan Boston Area: no action, ad hoc (actions are triggered when an infrastructure/system fails) and precautionary (actions are taken before a situation becomes problematic). In all their scenarios, the no-action alternative is the

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9 worst choice, even when the magnitude of climate change was limited. On the other hand, the proposed solutions - appropriate sea-rise protection structures (bigger structures in the most populous areas, less intrusive arrangements otherwise) implemented in the next decades and floodplain and run-off management as an integral part of river-based flooding mitigation - have been dubbed as ‘no-regrets’ since they will be always be beneficial. Furthermore, Kirshen and his colleagues argue that most climate change adaptation projects have secondary benefits, as an example, revitalized wetlands and banks designed to lower peak runoff volumes will also improve the regional ecosystems and capture some additional carbon- dioxide emissions. Also, water holding capacity can be as useful during rain events to retain runoff as during dry spells when they act as fresh water reservoirs. Finally, the authors place an onus on land use planners to avoid assigning high-risk zones to important activities and to make sure that their plans do not exacerbate existing threats.

In order to support preventive maintenance activities, which have been found to be much more cost effective than reactive patchworks, many models have been developed to link various characteristics such as age, materials, soils, usage and break history to future break rates. These tools help municipal planners prioritize road and underground works in a way that would fit the water system rehabilitation needs, which can generate interesting savings for their cities. (Logonathan, Park and Sherali 2002; Yan and Vairavamoorthy 2003)

In Northwest Europe, cities and institution from five countries set up the Future Cities project with the aim of developing pre-emptive schemes to mitigate the impacts of climate change on their citizens and avoid the steep costs they believe will come with an ad hoc adaptation approach. They advocate the coupling of green structures to the natural water cycle as a key component in coping with heat islands, flooding and extreme rain events. The main challenge they identified is to convert existing derelict built spaces in attractive and effective blue and green oasis.

Nijmengen (Netherlands) will transform public yards in public parks that will also double up as infiltration fields and reservoirs. They also plan on greening many buildings’ roofs and walls. In Rouen (France) an abandoned industrial port complex (Luciline) will be revamped and redesigned as a high-density mixed commercial/residential district implementing state-of- the-art energy (geothermal heat network) and water (green corridors, engineered reservoirs/infiltration areas) management techniques. On the Lippe River (Germany) catchment area, river side home owners

get financial support to improve their land and help redirect water from the sewers to the natural means of evacuation. Additionally, the new landscapes will diminish the area’s vulnerability to flood, fortify the local ecosystem and minimize heat islands. All in all, the Future Cities initiatives will not only improve the resilience of the region no matter what the actual magnitude of climate changes turns out to be, but they can even increase the aesthetics and quality of life of a neighbourhood. In other words, they also are no- regrets solutions. (Frehmann and Althoff 2010) French municipalities in Brittany organised an important information campaign promoting better water management in public buildings. They conducted thorough audits and examinations, acted upon the conclusions and made the required adjustments. In the end they managed to reduce the water consumption of their pilot projects by 20% and are hopeful to replicate the success in all public buildings. Similarly, municipal authorities in Grenoble have created yearly savings of 1.5 million Euros just by introducing smarter and more frugal toilet systems. A similar program was put in place in Winnipeg (Canada) where a CAN$ 680 000 yearly investment in public awareness and public building retrofitting yielded a 13% decrease in total water consumption. (Maresca and Poquet 2005)

Initiatives like those presented above could be said to belong in a ‘soft path’ approach. Contrary to its

‘hard’ counterpart who leans on heavily centralized infrastructure, ‘soft’ network use on-site amenities, from neighbourhood scale membrane filtration plants to urine-separating toilets to allow a downscaling of the central plants and networks. One of its key tenets is improving water efficiency. In a lot of sectors, water is needed for specific purposes or at specific locations (like in agriculture) but the inability to precisely target needs forces users to over consume to compensate. By developing better techniques and technologies, one can drastically reduce its water consumption, rendering the search for new sources obsolete. This can have major impacts on the cost of water since every new source will logically be more expensive to exploit then the existing ones, driving water costs upwards. As an example, the implementation of efficiency driving technologies and governmental programs allowed the cancellation of the 1 billion USD Two Forks Dam in Colorado (USA). The previously described Blue Belt program is another great demonstration. New York City reached its water quality standards for a third of what an equivalent treatment plant would have cost. As for stormwater management, it should move from a collect-and-evacuate modus operandi towards in-situ

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10 infiltration and local pre-treatment through engineered or natural wetlands and biowsales.

(Palaniappan et al. 2007)

A debate surrounds the necessity of installing residential water meters. In a 2003 study, Dale et al.

argue that while Central Valley municipalities (California, Western United States) with metered houses consume 25% less water per capita than unmetered cities, meters should not be automatically installed. In order to maximize the economic benefits to both consumers and utilities new meter installation program should only be carried out if water prices are higher than 0.30 USD/m3 while retrofit of existing equipment should only be considered when water prices top 0.90 USD/m3. The authors however mention that since the marginal cost of water for unmetered clients is zero, they will always use more than they actually need. The art of it all is then to find the right balance in investment in meters versus the projected savings.

In Canada, meters have also been credited with a decrease in water demand in equipped households.

Additionally, price increases of 10% tend to lead to a 2 to 4 % diminution in consumption. Moreover, if these price hikes are in a robust conservation program and appear serious and permanent to the clients, they can also encourage behaviour changes such as investment in water-efficient appliances. (Kitchen 2006)

However, the low cost of water in Canada makes it hard to recoup all the costs associated with metering program despite the water savings. Furthermore, the nature of water costs (mostly fixed) makes the savings even less attractive in the residential sector.

Moreover, the consumption reductions credited to water meters (up to 20%) has sometimes been explained by a very simple mechanical explanation.

The installation of a meter will cause a slight decrease in water pressure in the connected building which could explain more than half of the reduction in flow.

Still, meters could have their place highly heterogeneous buildings that have a mix of residential, commercial and/or touristic users and to moderate heavy users (such as commercial and industrial sites but also pool owners). Yet, education and outreach have been touted as the best approaches in such a setting. (Maresca and Poquet 2005)

4.2.2 Financing and Governance

In 1992, the members of the United Nations adopted the ‘Dublin Principles’ which stated, among other things, that due to water’s finiteness and the competition over its availability, water should be

treated as an economic good. It also promoted an inclusive approach to the management of this life supporting substance in which all stakeholders should have a say. However, as a common good with very specific infrastructure needs and life-threatening externalities, water presents many characteristics that make it one of a kind in market economies. (Ouyahia 2006)

Van de Meene (2011) presents three governance ideologies that pertain to water infrastructure and resources management: hierarchical, market and network. Hierarchical organisations are stable, provide strong leadership, usually have an easier time handing sanctions and upholding legislation, distribute responsibilities in a top-down approach but are considered hard to communicate with and slow to react. On the other hand, the ‘private’ or ‘market view’ proposes to apply private business principles to water distribution. Its supporters believe the competition, market driven prices and customer behaviours will improve systems’ efficiency and financial sustainability. However, detractors fear monopolies that diminish governmental influence on such an important resource. Market solutions can take many forms, from outright sales to temporary leases with conditions to fulfil. Finally, public participation, cooperation and flexibility are at the heart of the ‘network theory’ which encourages administrations towards decentralization, a feature that decreases overall accountability according to the critics. In conclusion, the authors suggest, after interviewing 127 managers in Australia, that a hybrid approach combining strong leadership, closeness to the users and performance incentives would likely achieve the most success. They will however concede that such an organization will have to manage tensions between the all different philosophies.

As for financing, it should come mostly from an adequately adjusted fee or tax structure that covers operating costs and replacement needs. Service fees should be based on a ‘user pays’ basis with various incentives to consume responsibly. The relation between such taxes and the associated services has be transparent and straightforward, thereby positioning municipal authorities in a position where they can be held accountable for the service’s quality and where customer are clearly informed of their choices and tendencies. Finally, public-private partnerships (PPPs) have reduced infrastructure spending in many countries. The key to a PPP’s success lays in a good contract and a suitable distribution of financial risks.

In the United Kingdom, PPPs are credited with an average discount in running costs of 17 to 20%

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11 compared to a municipally administered service.

(Kitchen 2006)

Yet, controversy exists over the superiority of one form of ownership over the other. A review of completed research in the United States, United Kingdom and Australia fails to produce a clear answer. Some work will declare publicly administered utilities more beneficial while others claim that private interest induced governance principles lead to better results. It would appear that the most important drivers of efficiency are not related to ownership but rather to output volume, strict environmental regulation and competition.

However, sharing a population amongst utilities is unpractical due to the nature of distribution networks, a reality that has forced the sector in a monopolistic state. Finally, many observers attribute the recent gains in the British water industry to the more stringent environmental and technological requirements introduced in Europe. (Abbot and Cohen 2009)

PPPs cannot alleviate the innate obstacles to efficiency found in the water sector. The investments in capital are great and permanent (i.e. they cannot be substituted for a better alternative during their lifetime). The underground nature of most of the infrastructure also limits the available information regarding its state and performance. This can as well allow private corporations to hide information from the public regulator. Moreover, utilities cannot choose to forego a non-profitable segment of its clientele and even monopolistic contracts attributed through auctions are generally renegotiated after a while to improve revenues. Furthermore, the government cannot disengage itself greatly from the water sector. The distribution of safe water is of such great importance that a regulating body will always be needed. This means that PPPs (or for that matter, full privatization) is just a redefinition of the government’s role which might lead to expenses he wouldn’t have to make if utilities were publicly run (more inspection, regulation, renegotiations, etc.).

Add the complicated and often expensive private partner selection process, for which most small and medium sized municipalities are not adequately tooled, and the expected efficiency savings quickly disappear. Finally, the inclusion of a third stakeholder in the form of a private corporation who will expect a reasonable return on its investment will create a three- way tug-of-war between the public’s needs for safe and reliable water, the shareholders expectations of dividends, and the government’s promises to both parties. These tensions will be exacerbated in underprivileged or rural areas and in time of needs

(like droughts). Profit seeking corporations might try to offer only the most profitable services in these circumstances. (Ouyahia 2006)

A successful PPP should be defined by transparency and accountability. A lot of information, from contracts to performance indicators, should be made public and evaluation by governmental institutions, or even neutral third parties, should be frequent and publicized. Taking these steps could ensure that the general population trusts both the private corporation and its government. Yet, PPPs should only be chosen after a transparent evaluation of different ownership schemes has been conducted. Cases of sub-standard water quality, contamination, and aggressive renegotiations have been reported in both France and the United Kingdom. (Ouyahia 2006)

PPPs have prompted increases in residential consumer bills in many cases. As an example, French customers served by private utilities pay on average 16% more than their publicly supplied countrymen.

Yet, it is still unclear as to what exactly leads to this difference. The facts that PPPs are usually considered in cases where capital investments needs are high, that transactions costs induced by the ownership change can be important and that depreciation accounting methods could differ might explain most of this correlation. (Chong et al. 2006;

Dore, Kushner and Zumer 2004; Ouyahia 2006) While considering the implication of a private partner, the East Bay Municipal Utility District (California, USA) hired external auditors to evaluate many of management practices from maintenance to acquisitions. They then dedicated a budget of 1.2 million USD to act on the audit’s conclusions and managed to create savings of 7 million USD prompting management to forego privatization.

(Palaniappan et al. 2007)

Much like Kitchen, Renzetti and Kushner (2004) warn that underpriced services will lead on a slippery slope of overconsumption and carelessness. The authors propose two solutions: break even or cradle- to-grave financing. The first approach requires that administrator make a careful evaluation of all the financial costs associated with their system including maintenance activities, operational expenses, environmental protection and long term budgeting.

Renzetti and Kushner suggest that public utilities should include opportunity costs and capital degradation in their financial planning even if they were subsidized. Assets such as land plots are specially targeted by this initiative. Actually, he proposes that government make it a law so that no matter the type of ownership, water services are

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12 appropriately funded. The second idea is more radical. Renzetti and Kushner wonder if customer should also be charged for the social and environmental price incurred by the production, distribution and disposal of water. In Ontario (Canada), water utilities and factories can take water from nature free charge. The same goes for wastewater (as long as it respect the pollution limits set by the Ontario Ministry of Environment). Yet, once water has been taken from a source, it is no longer available for other use. An appropriate way to put a price tag on water would be to consider the cost of acquiring similar volumes from an alternate source.

Similarly, wastewater treatment plants can potentially harm touristic activities or property value if they fail to adequately treat the rejected water. This risk factor should thus be included in water price. All these considerations have one main goal: have customer make a well-educated decision about the consequences of their consumption.

Alternatively, tariffs could be based on technical performance targets rather than political or social considerations. A price structure would be deemed appropriate if it allows a water distribution system to reliably deliver, all year round, good quality water to a consumer’s house at the right pressure. This requires that the underground pipes are in good condition and that all consumption is metered to minimize leakage and waste. To determine the appropriate tariff, utilities managers should evaluate all the fixed expenses (independent from throughput - maintenance, operations, meter installation, administration, etc.), variable costs (energy, network degradation, workforce, etc.) and future capital investments required to meet specific performance standards. (Cabrera et al. 2003)

AWWA (2001) thinks that utilities should finance themselves (including replacement investments) through their rates. However, they are wary of the delicate nature of the balance between the utilities’

needs, the water tariff and the customer’s financial capacity. First, they worry that limited income may force utilities to choose between present maintenance operations and future capital investment needs.

Delaying infrastructure investment will negatively impact an owner’s credit score while skipping maintenance work will cause the upkeep bill to grow, two situations that will only worsen a utility’s financial situation and increase its needs. It’s a lose- lose situation. The authors then warn that rate increases are more bearable to customers if they are gradually implemented over a long period of time but that the current financing gap requires drastic actions.

A further warning is issued regarding the poorer

members of society. A water rate increase, which is ultimately designed to protect people’s health and the economy, might impair their capacity to visit a doctor (in the private American system) or acquire other basic necessities. In a nutshell, AWWA believes that to meet the needs of what they dubbed the

‘replacement era’, expenditures (in maintenance and infrastructure) and revenues (through rates) will have to increase in a similar fashion.

Maresca and Poquet (2005) have, on their part, identified 3 main pricing schemes: volumetric (requires water meters, credited with a 20% decrease in water consumption), social (based on the social and financial characteristics of the consumer, requires a huge administrative process to certify all the information) and progressive (price rises with consumption, allows everyone a certain amount at reduced rates). The authors have however found that the actual price of water has a bigger influence on individual consumption than the specifics of the billing method.

Rogers, de Silva and Bhatia (2002) note that another problem with subsidized or underpriced water services is that they may mask signals from the economic, social and natural environments. Indeed, activities that would not be viable under full cost pricing are allowed to endure because of the low tariffs. The authors argue that pricing schemes like block tariffs (progressive costs related to consumption) will help everyone: utilities get more constituent revenues, minimal hygienic quantities can be acquired by poor costumers, and everyone is encouraged to regulate his own consumption. It is however important that the prices are consistent through all sources and activities to prevent indirect inter-sectorial subsidies and abuse. While there exist different degrees of cost recovery (covering various elements like externalities, opportunity costs, maintenance expenses and/or capital needs) the authors believe that sustainable development requires that all these components be included.

Palanippan et al. (2007) express some reservations regarding the currently trendy full cost pricing schemes. They argue that while the current models aim to internalize the costs of maintenance, renewal and climate change adaption they fail to account for the many benefits that societies get from well- functioning water services. Since quality drinking water saves millions in healthcare expenses, shouldn’t a part of the health system’s budget be earmarked for water treatment? A tax could also be levied on employers who can safely assume that their workforce won’t constantly fall prey to various

References

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