Pricing for Reclaimed Water in Valencia, Spain: Externalities and Cost Recovery

Abstract

The cost of reclaimed water and the tariffs paid by water users illustrate that the principle of cost recovery is not met in the majority of water reuse projects. However, such projects may also generate positive externalities, contributing to improved welfare of the entire society. This chapter describes the case of the Valencia region of Spain, referring to agreements among water stakeholders. It also includes a proposal of pricing for reclaimed water to be implemented in this area as a pilot case in order to develop a framework for costs and financial, institutional, and social arrangements for water reuse projects. A two-part tariff with a combination of a decreasing and increasing rate structure is proposed. This experience will help water associations and water companies to focus on new water reuse projects and opportunities they introduce. The chapter also explains why the cost-recovery principle is not met for almost all water reuse projects and identifies the major constraints hindering the implementation of this economic principle.