International Journal of Water Resources Development

ISSN: 0790-0627 (Print) 1360-0648 (Online) Journal homepage: https://www.tandfonline.com/loi/cijw20

Water demand reduction to help meet SDG 6:

learning from major Australian cities

James Horne

To cite this article: James Horne (2019): Water demand reduction to help meet SDG 6: learning
from major Australian cities, International Journal of Water Resources Development, DOI:
10.1080/07900627.2019.1638229

To link to this article: https://doi.org/10.1080/07900627.2019.1638229

Published online: 18 Jul 2019.

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INTERNATIONAL JOURNAL OF WATER RESOURCES DEVELOPMENT
https://doi.org/10.1080/07900627.2019.1638229

Water demand reduction to help meet SDG 6: learning from

major Australian cities
James Horne
James Horne and Associates, Canberra, Australia

ABSTRACT ARTICLE HISTORY

Sustainable Development Goal 6 seeks to address the increasing Received 27 February 2019
and unmet demand for water in many urban areas already strug- Accepted 25 June 2019
gling with inadequate water quality and supply. With climate KEYWORDS
change posing new threats, and both population growth and Water demand reduction;
rural urban migration exacerbating existing issues, measures to urban water; Australia; safe
reduce water demand sit alongside increasing water supply to water; sustainable
address the problem. This article outlines Australia’s experience development goals; water
in reducing water demand in urban areas, illustrating a range of governance
measures that could contribute to meeting this goal. Key measures
have a low fiscal cost, but require attention to governance.

Introduction
There has been much focus on what is seen by many as an inexorably increasing
demand for water (Akhmouch, Clavreul, & Glas, 2018; High Level Panel on Water
[HLPW], 2018; World Bank, 2017, 2018). Population growth in many key urban centres
with water management systems already under stress is almost a given. Adverse impacts
from climate change on water resource availability and quality is a looming threat. If
policy settings remain unchanged, this outcome seems inevitable. Historically, response
to water scarcity in urban areas has focused on new dams and pipes to serve the
growing demand. In 2015 national governments made high-level commitments in
regard to the UN’s Sustainable Development Goals (SDGs). SDG 6 is to ensure availability
and sustainable management of water and sanitation for all (United Nations
Development Programme, 2016). This article explores addressing SDG 6 in part through
demand reduction. Changes in use of technology, regulation and governance, how we
house our population, how water utilities operate and how our society views water
services are all factors subject to change that could contribute to addressing this issue.
Our approach is to examine how one developed country, Australia, has (successfully)
sought to reduce water demand in urban areas. We fully recognize that experiences and
priorities will differ between countries and that water service providers (WSPs) in
different urban areas will face different challenges (Grafton, Garrick, & Horne, 2017).
Each urban area will need to develop its own approach to improving access to safe
water. The article does not discuss supply issues in detail, though they are often critical.
Rather, it seeks to outline how demand reduction approaches can create significant

CONTACT James Horne jameshorne@iinet.net.au

© 2019 Informa UK Limited, trading as Taylor & Francis Group
2 J. HORNE

headroom to address supply shortfalls, often without the same fiscal requirements.
Many countries have already acknowledged that meeting SDG 6 will be very difficult
(Horne, Tortajada, & Harrington, 2018). The contention in this article is that demand
reduction measures need to be considered more fully alongside more traditional supply
augmentation approaches.
The first part of this article reviews the key changes in managing urban water
demand in Australia over the past two decades, and their effectiveness. It assesses
annual reports of WSPs, and reports by independent water regulators and auditors.
Using experiences from six major Australian cities (Sydney, Melbourne, Brisbane, Perth,
Adelaide and Canberra) that together account for around 60% of Australia’s population
of 25 million, this article examines demand management measures that have become a
permanent, everyday feature of the urban water management landscape, and measures
that hitherto have proved less effective. We briefly explore reasons for the ongoing
successes and the relative failures.
Against a background of fully understanding the difficulty of translating experiences
from one country to another, the second part of this article discusses the case for
applying these measures in cities outside Australia in context of SDG 6, particularly in
urban areas struggling to provide a secure supply of safe potable drinking water to their
growing populations. We fully accept the OECD position that a key issue in addressing
demand growth is the need for sustained good governance (OECD, 2018). While much
has been written on specific cities already (World Bank, 2018), the measures explored
provide insights on what can be done to reduce demand in terms of the nature of
measures and their materiality, if appropriate conditions are in place. While bodies like
the UN’s HLPW (2018) have shone some light on efficiency issues, this article covers a
range of demand measures to address water scarcity. Demand can always be con-
strained or reduced, but the question is at what cost, and what are the incentive
structures and barriers that make this outcome difficult to achieve. To solve this massive
problem we will need to contend with increasingly significant issues posed by climate
change for water security and supply in many urban centres on the one hand, and the
promise of technology to provide greater flexibility of supply (for example by boosting
weather-independent sources) on the other.

Reducing water demand in urban Australia

Overall, between 2000 and 2016, national residential water consumption in Australian
cities and towns fell by around one-third, from 280 to 182 kL per property per year
(Productivity Commission, 2017). Figures 1 and 2 provide a visual perspective on overall
use in Australia’s two largest cities, Sydney and Melbourne.
As a result of a microeconomic reform strategy put in place in the mid-1990s under
the auspices of the Council of Australian Governments (1995), state governments began
a lengthy process to put urban water services onto a sustainable footing. This involved,
inter alia, significant increases in the retail urban water price. The Millennium Drought
(1997–2009), which affected most of eastern Australia, brought actual urban water use
into much sharper focus. The national government and all state governments (and local
government, where it was involved), WSPs and consumers were forced to give the issue
of use much more direct attention. The resultant decline in per capita water use of
 INTERNATIONAL JOURNAL OF WATER RESOURCES DEVELOPMENT 3

Figure 1. Sydney per capita water use.

Source: Sydney Water (2015).

Figure 2. Melbourne per capita water use.

Source: Melbourne Water, personal communication, 2018.

around one-third between 2000–01 and 2008–09 can be largely attributed to nine
drivers including the growing proportion of apartments, which have much smaller
outdoor use requirements, in the total housing stock. While there was considerable
variation of detail in the approaches used by different urban areas, the major drivers
were consistent.
4 J. HORNE

Price
A starting point for reducing demand, and increasing long-term system viability, was an
effort to increase water prices, commencing in the 1990s, before the Millennium
Drought. Under these reforms the intent was that urban water prices should achieve
full recovery of operating costs and capital expenditure for new or replacement infra-
structure assets, including a return on capital and a depreciation charge for legacy
assets. The higher prices brought attention to water use efficiency, and had some direct
impact on demand (Grafton & Ward, 2010). Governments have embraced this approach
in large metropolitan areas to a greater or lesser extent, in line with the National Water
Initiative Pricing Principles, agreed under Council of Australian Governments processes
in 2010 (Natural Resource Management Ministerial Council, 2010). In four of the six cities
(Sydney, Melbourne, Adelaide and Canberra), the regulator sets prices and service
licence conditions independently of the government. In the other two cases, the
decision making relies less on the regulator. In Perth, the government receives advice
from the independent state regulator, while in Brisbane the pricing regime for retail
utilities is far from transparent. The approach taken by all regulators is much more
transparent than it was two decades ago, and reflective of community expectations. See
Table 1 for details.
Water prices initially rose substantially, reflecting that they had been set too low
historically. Prices have largely stabilized at around these higher levels. In fact, there
have been small price declines in recent years in Sydney, Melbourne, Canberra and
Adelaide, reflecting close attention by the competition regulators to long-run mar-
ginal costs and productivity improvements (see e.g. Independent Pricing and
Regulatory Tribunal [IPART], 2016; Sydney Water, 2018b). All WSPs have two-part
tariffs (a supply charge and a water use charge) and, with the exception of Sydney,
two-stage water use prices, increasing at a specified volume (Sydney has a single
price). Licence conditions require water businesses to improve their cost-effective-
ness over time. While studies on the price elasticity of water demand are few,
several studies for Sydney indicate a long-term price elasticity of around −0.4
(Abrams, Kumaradevan, Sarafidis, & Spaninks, 2012; Grafton & Kompas, 2007;
Kumaradevan, 2013), broadly in line with many overseas studies (Reynaud &
Romano, 2018). This figure (in Sydney and other Australian cities considered here)
is likely to decline over time, with improvement in the water efficiency of appliances
and the increasing prevalence of apartment living. So, reductions in use from here
on are likely to come from a further shift to apartment living and other measures
discussed below.

Housing stock trends

Since 1991, the share of apartments in the Australian household stock has grown, from 1
in 7 to 1 in 5 today, with the major concentrations being in Sydney, Melbourne and SE
Queensland (Australian Bureau of Statistics, 2017). The average size of detached-dwell-
ing residential lots has also shrunk. With outdoor water use typically around 40% of
household water use, these two factors have had, and continue to have, a small down-
ward effect on average residential per capita use.
Table 1. 2018 urban water prices, regulation and profitability.
Independent Price (AUD/kL),
Area Major urban water utility Regulator price setting? 2018–19 Profitability*
Sydney Water NSW (bulk), Sydney Water Independent Pricing and ✓ 2.08 Yes; NPAT of $572 M and ROA of
Regulatory Tribunal 6.8%
Melbourne Melbourne Water (bulk), plus retailers City Essential Services Commission ✓ 2.44–3.12 Yes; Melbourne Water strongly
West Water, South East Water, Yarra Valley profitable, but lower profitability
Water for retailers
Brisbane (Southeast Seqwater (bulk), plus retailers Queensland Queensland Competition ✗ 2.91 + 0.76–1.49 Mixed; retailers profitable, but
Queensland) Urban Utilities, Unitywater, Gold Coast, Authority Seqwater makes small loss,
Redland, and Logan City Councils reflecting high interest cost
Perth Water Corporation Economic Regulation Authority ✗ 1.78–4.44 Yes; strongly profitable
Adelaide SA Water Essential Services Commission of ✓ 1.77–2.52 Yes; strongly profitable
SA
Canberra Icon Water Independent Competition and ✓ 2.43–4.88 Yes; strongly profitable
Regulatory Commission
Note: In regional NSW and Queensland, most water utilities serving smaller urban areas are owned and operated by local government, and outside the purview of economic regulation
authorities. The main exception in NSW is the role of IPART in regulating water prices set in the Hunter region.
*Draws on 2017–18 annual reports for all WSPs mentioned. Specific comments relate to 2016–17 and 2017–18, but draw on annual reports over the past half decade.
Source: Icon Water, 2018; Melbourne Water, 2018; Queensland Urban Utilities, 2018; SA Water, 2018; Seqwater, 2018; Sydney Water, 2018a.
INTERNATIONAL JOURNAL OF WATER RESOURCES DEVELOPMENT
5
6 J. HORNE

Improving consumer information via the Water Efficiency Labelling and

Standards scheme
Water Efficiency Labelling and Standards (WELS) is a mandatory national cooperative
information scheme introduced in 2005 and administered by the Australian national
government in partnership with state governments. Its purpose continues to be to
reduce water use by helping consumers make informed decisions about the water
efficiency of household appliances, such as toilets, shower heads, washing machines
and dishwashers. All registered appliances carry a water efficiency rating label, and
standards are periodically updated to reflect the latest technology (Australian
Government, 2018a, 2018b).
The scheme has been reviewed twice since its inception (at five-year intervals) and is
credited with not only making consumers more aware of the amount of water used by
household appliances, but also ensuring that readily available household appliances all
meet specified standards and that these standards become more demanding as tech-
nology improves. Reviews of the scheme suggest that it has been instrumental in
reducing water use by households but also brought substantial financial savings to
consumers from reduced water and energy use (Aither, 2015; Guest, 2010). By 2013, one
estimate was that it had reduced annual national urban water demand by over 70
gigalitres (GL), with savings expected to increase to 200 GL per year by 2030, as an
increasing proportion of the appliance stock is upgraded (Fyfe et al., 2015). If these
figures are accurate, overall demand is currently 5% below what it otherwise would have
been had the scheme not been introduced, making this driver to reduce demand one of
the largest. Compliance and enforcement by the Australian government is becoming a
more important feature of the scheme (Australian Government, 2018b), and this should
solidify its ongoing contribution to demand reduction.

Building codes reinforce WELS

State building codes covering Australia’s major cities all have elements relating to
water conservation. Some aspects of these codes link to the WELS scheme, reinforcing
its intent. For example, the NSW Building Sustainability Index (BASIX) scheme intro-
duced in 2004 with application to Sydney seeks to reduce water use by 40% by
mandating minimum standards in new residential dwellings for shower heads, toilets
and taps (all having easily understood value), as well as rainwater tanks and external
water use, whose net benefits are much more questionable, particularly in the long
term (NSW Department of Planning and Infrastructure, 2013). Other codes include the
2009 Queensland Development Code as it applies to water and the 2009 Water
Sensitive Urban Design code in Canberra (ACT Government, 2018; Queensland
Government, 2007). Determining the quantitative impact of the various building
codes in reducing demand is fraught, but suffice it to say that in tandem with the
WELS scheme they have been very important in reducing water demand, even if some
elements (for example, the role of roof-fed water tanks to supplement outdoor water
use) warrant rethinking.
 INTERNATIONAL JOURNAL OF WATER RESOURCES DEVELOPMENT 7

Figure 3. Economic Level of Water Conservation methodology.

Note: The levelized cost is the present value of net project costs divided by the present value of water saved, measured
over the life of the project.Source: Sydney Water (2018a).

Reducing system leaks

Actions by WSPs to reduce system leaks could both improve profitability and reduce
demand. System leakage in the cities under discussion appears small by international
standards (for example Canberra, Melbourne, Perth and Sydney are all around 8–10%).
Reducing system leaks through pressure optimization and active leak management, or
reducing non-revenue water, has been a low-cost way of reducing demand for produced
water in some urban areas. This is not about eliminating water leaks but about finding the
optimal non-zero point where the cost of maintenance/fixing the leak equals the benefit to
the WSP. Sydney Water provides an excellent case study, based on the Economic Level of
Water Conservation (ELWC) methodology, introduced at the behest of IPART (Figure 3).
Sydney Water implemented cost-effective remedial pressure management schemes
throughout its water network between 2005 and 2013, resulting in ongoing savings of
around 10 GL per year (around 2% of Sydney’s total consumption). Likewise, from the
standpoint of a well-performing water system, the level of water saving through active
remediation (hence demand reduction) is modest but useful, saving an estimated 20 GL in
2015–16 from a 2002 baseline, and additional savings of around 1 GL in 2016–17. Combined,
these savings equate to around 6% of Sydney’s current water use. The ELWC methodology
underscores the focus on giving consumers value for their money through water-saving
measures (Sydney Water, 2018b), and it forms the basis of the water conservation activities
of Sydney Water. It also ensures that water conservation is not a burden on the financial
strength of the utility, and this is acknowledged through licence conditions set out by the
economic regulator, discussed more fully below.
8 J. HORNE

The Water Corporation in Perth has had effective risk-based programmes to reduce
water losses (Western Australian Auditor General, 2014). In 2018, SA Water introduced
smart meters into the Adelaide central business district, to monitor leaks and faults. But
while SA Water has trumpeted this programme as a benefit for consumers, evidence on
cost effectiveness is not publicly available (SA Water, 2018).
In a general sense, there are limits on how much water can be cost-effectively saved
through pressure reduction and efficient attention to leaks. Continuing maintenance is
required, but it should have one eye on cost effectiveness.
Recycling also needs to consider the optimal level of water conservation. From year
to year the use of recycled water will fluctuate, reflecting factors such as rainfall and
availability and relative cost of potable water. Perth’s groundwater replenishment
scheme is a good example of cost-effective centralized recycling (Horne, 2016). The
decline in centralized production of recycled water in some cities since the end of the
Millennium Drought reflects the relatively lower demand for product that is not cost
competitive. For example, Brisbane’s Western Corridor Recycled Water Scheme was
effectively mothballed in 2013, and remains so six years later (Seqwater, 2016).
Companies (the main users of recycled water) will purchase these products if they are
cost competitive, or if alternatives are limited. As water scarcity declines, so will overall
demand for uncompetitive centralized recycled water.
Some companies and residential developments (for example Cooper’s brewery in
Adelaide, the Yatala brewery near Brisbane, and the Central Park and Green Square
residential developments in Sydney) have built water recycling into their business model
where it makes commercial sense, to increase water security and reduce long-term input
costs, and for brand enhancement (Bureau of Meteorology, 2015; Horne, 2016).

Actions directed at consumer water use behaviour

As the impact of the Millennium Drought on water supplies dissipated, water utilities left in
place ‘water-wise’ rules on outdoor water use. In Sydney, for example, this included a
requirement for trigger nozzles on hoses, that watering be limited to before 10 am and
after 4 pm, prohibition of hosing of hard surfaces such as paths, and fire hoses restricted to
use in firefighting. These measures remained even when the water storages were full, in an
effort to reshape consumer behaviour (Metropolitan Water, 2017). In Canberra the list was
much longer, focusing on the use of high-pressure, low-volume devices for all cleaning
activities, but the essence was the same, to reshape consumer behaviour (Icon Water, 2018).
Some governments have been less consistent. For example, in 2008 the Victorian
government introduced the voluntary Target 155 for Melbourne, a plan to reduce
householder water use to 155 litres per person per day. However, despite evidence
that it was working, it was abandoned in 2011 as water storages improved. It was re-
introduced in 2016 as water in storages declined sharply, when consumption was
161 litres per person per day, along with the thought that it might be necessary to
reduce demand even further (Melbourne Water, 2017). This inconsistent approach to
behavioural issues for political purposes makes it less likely that consumers will tackle
scarcity issues seriously. It seems at the time it was directed at ensuring revenue
maximization when water was abundant, but now has been replaced by an approach
entrenching ‘valuing water’.
 INTERNATIONAL JOURNAL OF WATER RESOURCES DEVELOPMENT 9

In recent years, smart water meters have been introduced by many smaller utilities in
Australia. Many larger utilities are also examining business cases for their introduction.
The case appears to be built around early leak identification, helping consumers under-
stand their water use, and the possibility of dynamic pricing (Coliban Water, 2018; KPMG,
2018). It is not yet possible to provide an empirically based view of their significance,
except to say that the introduction of individual meters for apartments in high-density
developments seems likely to contribute to reducing water demand.

Independent economic regulators

WSPs operating in four of the six cities discussed here (Sydney, Melbourne, Canberra and
Adelaide) are subject to independent economic regulation, where the regulator, not the
government, sets the key terms of the license under which WSPs operate. In practical
terms, this provides a transparent process for examining service conditions and perfor-
mance on a regular basis, while reducing the likelihood of ill-advised political interven-
tion in price setting. The independent economic regulators (Table 1) set out economic,
environmental and health objectives, with the aim of driving lower costs through better
productivity, but also providing a pricing structure and overall revenue benchmarks that
allow appropriate investment and maintenance. This establishes underlying financial
strength (exemplified by a financial framework that targets a mid-level investment grade
credit rating, such as Moody’s Baa).
In a 2017 report, Australia’s Productivity Commission (2017, pp. 60–61) argues that
‘independent economic regulation encourages efficient service delivery by applying
rigorous scrutiny to operational and investment decisions’, ‘facilitates consistent and
improved planning, increases the transparency of decision making and reduces the risk
of political interference in price-setting processes’. Water price setting in both Brisbane
and Perth (where key decisions are made by the state governments, not the indepen-
dent economic regulator) is more political and lacks the clarity seen in the other cities,
although in ballpark terms prices are not significantly out of line with National Water
Initiative guidelines. Elsewhere in Australia, away from the key cities discussed in this
article (for example, in regional New South Wales and Queensland, and in Tasmania), the
absence of an independent price regulator has resulted in inferior quality outcomes, and
lower prices than are considered optimal by the National Water Initiative guidelines
(Productivity Commission, 2017). While the information is dated, the commission has
estimated that in the early 2000s national GDP was about 0.35% higher than it would
have been, thanks to institutional and pricing reforms in the urban water sector
(Productivity Commission, 2005). The inclusion of improved productivity targets
(achieved by reducing the cost structures embodied in financial models for water
businesses) has helped drive better outcomes for consumers. Much of this has been
achieved by significant outsourcing of capital and operating expenditure to the private
sector (Infrastructure Partnerships Australia [IPA] and Water Services Association of
Australia [WSAA], 2015). Improved economic efficiency has gone hand in hand with
reduced water demand.
Stronger economic regulation alone has not produced the outcomes noted above.
The WSPs in the urban areas under discussion have themselves been significantly
transformed into modern consumer-focused businesses, with demanding shareholders
10 J. HORNE

(the state governments) and more demanding consumers (Productivity Commission,

2017; WSAA and KPMG, 2018), some of whom have new options to manage at least a
part of their ongoing water demand. The annual publication of performance data that
was embedded in National Water Initiative accountability processes in 2004 provides a
mechanism for comparing performance and encouraging underperformers to improve.
This comparative performance data covers pricing, finance, customer service standards
and operational service standards for large capital city WSPs (those examined in this
article) and smaller, regional urban area WSPs (Bureau of Meteorology, 2018a, 2018b).
The role of economic regulators has raised the quality of debate and consistency in
decision making, resulting in better outcomes in the use of investment resources.
IPART’s requirement that Sydney Water develop an ELWC methodology, for example,
has put the issue of demand reduction into a temporal context of prevailing water
scarcity (Sydney Water, 2018b). The methodology recognizes the importance of cost-
effectiveness of options in the context of the value of water at a specific time. The
temporal character of scarcity issues and their management is one key element in the
relative effectiveness of options available to policy makers.
The definition of ‘good practice’ in the regulatory sphere changes over time (Frontier
Economics and ARUP, 2017). The current regulatory approach taken in Sydney,
Melbourne, Adelaide and Canberra at least ensures that the WSPs covered in those
cities are well placed to manage the stresses put on their water resources through
population growth and climate change.

Decentralized provision and competition policy

There are cases of decentralized provision of water in Australian cities, but at this
point its aggregate impact is very small. State legislation in NSW (the Water Industry
Competition Act), affecting the Sydney metropolitan area, provides a framework for
decentralized competition to the incumbent monopolist WSP. This could offer oppor-
tunities to reduce demand on the centralized water supply system, through on-site
collection and increased water recycling and reuse. But, as the Sydney experience
shows, decentralized providers are in the main unlikely to be welcomed by incum-
bent providers, and there are issues around cherry picking (for example, developers
seeking to capture all the benefits of change within the gated community, leaving
costs to be borne outside wherever possible). More work is required in this area to
address the barriers to entry faced by decentralized providers before this approach is
likely to contribute significantly to reducing demand (Horne, 2016), but in cities with
high demand growth, unserved demand or rapid evolution to new urban forms, care
needs to be taken not to hinder new approaches to service provision.
Examples of the potential role of stormwater and other recycling in inner cities
to reduce demand are the Green Square and Central Park projects operated by
private operator Flow Systems in Sydney. These projects can contribute to inner-
city renewal and revitalization, while reducing per capita water demand signifi-
cantly. This can reduce pressure on existing infrastructure, but to be successful
must offer competitive water prices to users. Central Park Water operates under the
same licence conditions as Sydney Water and the same regulator, IPART. BASIX,
which aims to achieve a 40% reduction in water use per capita, is part of the
 INTERNATIONAL JOURNAL OF WATER RESOURCES DEVELOPMENT 11

regulatory framework driving change (Flow, 2018). These schemes are materially
different from Brisbane’s grandiose and very costly Western Corridor Recycled
Water Scheme, which was (and still is) part of its centralized infrastructure. It is
now seen as water security infrastructure, rather than infrastructure that contributes
materially to demand reduction (Seqwater, 2016). There have been some small-
scale stormwater-recycling success stories, for example the City of Salisbury in
Adelaide (City of Salisbury, 2019; Radcliffe, Page, Naumann, & Dillon, 2017;
Salisbury Water, 2018), but few that have been undertaken without significant
government subsidy.

Changing corporate behaviour?

The Millennium Drought brought with it a change in attitude of many corporations
towards water conservation and reuse (Horne, 2016). Whereas previously little effort had
been directed at managing water inputs, issues around water security and the impact of
water use on brand value became more important to larger water users. It is an open
question how much these changes were sustained in urban areas, as the impact of the
drought receded (Egan, 2018). There does seem to be some emphasis on water effi-
ciency in the government and commercial property sector as part of sustainability
branding, but its empirical significance has not been estimated (HFM Asset
Management, 2017; Zou, Stewart, Alam, Bertone, & Sahin, 2017).

Discussion of demand reduction programmes in Australia

Australia’s demand reduction programmes have been executed within a framework of
solid governance and strong balance sheets of WSPs. Unmet demand is largely absent
(Horne, 2018). The programmes have resulted in very large and sustained reductions in
water use and water use per capita, even if there are areas where more needs to be
done. The measures adopted range from very cost-effective to highly questionable, with
the latter illustrating how advocacy without evidence can get in the way of good,
sustainable policy. Combined with supply-side diversification towards climate-indepen-
dent water sources (such as desalination and recycling), these diverse urban areas
illustrate approaches that could merit close examination elsewhere.
The role of price needs to be considered more broadly than in the traditional
literature on price elasticities of demand. Price can be used to shape use of a scarce
resource. With long-run elasticity of around –0.4, a 20% increase in price will produce an
8% reduction in demand, which is significant. But at least as important as this initial
reduction in water demand is that it could help put the WSP on a sustainable long-term
financial footing.
Many of the approaches used to drive cost-effective demand reduction challenge the
historical vested interests and traditions of WSPs, which have been focused on growing
centralized monopoly services. Part of the task over the past decade has been to
remodel WSPs into customer-focused businesses that operate efficiently and use effec-
tively the capital set aside for high-quality (safe) water provision. This underscores the
importance of economic regulation that is anchored in long-term financial sustainability
and efficient service delivery.
12 J. HORNE

Demand reduction can be reconceptualized as using the existing supply more

effectively, as illustrated in WELS, developer requirements such as BASIX, cost-effec-
tive leak programmes, cost-effective recycling, pressure reduction and more effective
networking of supply systems and retrofitting old buildings with new taps and toilets.
These fall outside the traditional business of WSPs. Well-directed, government-backed
regulation and expenditure can be instrumental in altering behaviour with only
modest fiscal costs. Of course, with modern social media, traditional WSP businesses
today can materially contribute to their successful implementation through suppor-
tive online messaging. The result is the same level of service outcome with fewer
inputs.

Reducing demand and the SDGs

In this final section we examine how these largely mainstream approaches in Australia
might contribute to progress towards SDG 6. Many urban WSPs routinely face unmet
demand for safe water and sanitation services (for example major cities throughout India
and sub-Saharan Africa), and others confront it in time of crisis (for example, Cape Town
and Sao Paulo). Key policy issues include:

● the adequacy of existing policy frameworks (for example, is a WELS scheme in

place?) and governance arrangements (for example, strong independent regulation
with good compliance and free of corruption);
● the capacity and willingness to address water issues relating to slums and informal
settlements;
● the financial weakness of existing urban WSPs; and
● the approach to demand management, to drive water availability to unserved new
customers (Horne et al., 2018).

Addressing the first three of these issues is essential to meeting SDG 6 in a sustained
way, but having a good grasp of options and opportunities to address the fourth issue,
demand management, will raise the chances of its being met. A clear understanding of
options (summarized in Table 2) and how they might play in a specific urban area,
buttressed by transparency and stakeholder engagement, seems likely to increase the
likelihood of reform success, but it is no guarantee.

Water price as a tool to drive investment in hitherto unserved areas

The importance of appropriate pricing in many developing-country urban areas extends
beyond the demand response to increasing price. Several studies suggest that elasticity
is broadly in line with developed countries (Nuages & Whittington, 2010; Ramsey,
Berglund, & Goyal, 2017). That is potentially significant in reducing existing demand to
cover unmet demand. But we would contend that it is also important elsewhere: many
developing-country urban areas are simply unable to provide safe water to their
inhabitants, as a result of a shortfall of supply, in part reflecting inadequate financial
resources to invest in new infrastructure. Increasing the revenue base of WSPs could
establish one foothold to make further progress in addressing this critical issue.
Table 2. Demand reduction options to increase penetration of safe water in urban areas and to improve water security.
Measure
Increase water price to economically efficient
level
WELS scheme
Incentivize adoption of water-efficient
appliances and maintenance of existing
devices
Actions by water utilities (e.g., reducing
system leaks, including pressure
optimization)
Other actions directed at consumer
behaviour (e.g., permanent water-wise use
regulations and public information
campaigns)
Use of independent economic regulators
BASIX-type requirements for new building
(directed at installation of more water-
efficient appliances)
Corporates reassess water use, including
reuse
Competition policy reforms to allow water
service providers in gated communities
Strong gov-
Reduces ernance
demand Impact Comment required?
✓ Increases financial strength of water service provider, reduces Aim to improve access to disadvantaged ✓
use by existing wealthy users communities; subsidies may be required
✓ Increases adoption of water-efficient consumer appliances Compliance and enforcement essential; level of ✓
ambition to reflect benefit from reduced
demand
✓ Increases public understanding of benefit from maintenance Focus on public buildings and identified bang-for- ✓
and water-efficient appliances buck savings
✓ Increases financial strength of water service provider, and Ensure benchmarking within Economic Level of ✓
potential for allowing new connections Water Conservation framework
✓ Programme should focus on highlighting local water- Where outdoor use is limited, this may be less of a ✓
intensive behaviours priority
✓ With strong governance the regulators can set prices and Needs strong independent institutions ✓
licence conditions to optimize use of available resources,
putting onus on water service provider to achieve results
✓ Focus on first-order issues, including individual metering of Requires corruption-free institutional framework ✓
apartments, minimum efficiency standards in toilets, taps
and showerheads
? to ✓ Key issue is the value to the corporate entity of adopting best Tension between revenue-earning potential of ✗
practices (commercial, brand, water security) water service provider and efforts of corporates
to minimize water use
✓ Structure regulations to ensure that wealthy enclaves are not Tension between revenue-earning potential of ✓
subsidized by poorer communities water service provider and efforts of gated
communities to minimize use of ‘centralized’
water
INTERNATIONAL JOURNAL OF WATER RESOURCES DEVELOPMENT
13
14 J. HORNE

Many factors affect the distribution and quality of water services, including politics
(Brown & Hess, 2017; Herrera, 2017; McKenzie & Ray, 2009), corruption (UN Habitat, 2016;
Water Integrity Network, 2016, 2018), and governance arrangements (Barbosa, Mushtaq, &
Alam, 2016). But limited revenue restricts a WSP’s ability to invest in new infrastructure,
which is critical in rapidly growing urban areas. Raising prices may not be popular, but a
supportive coalition can be built if significantly improved access and quality outcomes can
be demonstrated. Affordability issues in relation to the urban poor will need to be handled
sensitively. Urban populations in Africa have grown significantly since 1990, and with that
the proportion of the urban population with piped water has fallen from 43% (1990) to
33% (2015), notwithstanding the focus of the governments, NGOs and the Millennium
Development Goals on improving access to ‘improved’ water. However, one study of five
urban areas (Dakar, Senegal; Ouagadougou, Burkina Faso; Nyeri, Kenya; Kampala, Uganda;
and eThekwini, South Africa) points to not only improved outcomes, but also outcomes
achieved in a way that serves their poorer communities. This has been achieved by
generating sufficient cash flow to finance investments by moderate tariffs, reduced non-
revenue water, increased revenue collection efficiency and higher labour productivity.
Progress began with changes in the political economy of the water sector and the WSP
serving the city (Heymans, Eberhard, Ehrhardt, & Riley, 2016). These reforms came from
within. Logical, straightforward approaches (Grafton et al., 2017) may fail if they do not
embody the culture and practice of the country in question.

WELS scheme and building regulations

In recent years there has been a gradual spread of WELS-type schemes (for example in
China, Malaysia, New Zealand and Singapore), and Australia is chairing international
efforts to develop a standard for water products (Australian Government, 2018b). A
WELS scheme built around transparency from the outset, with clear expectations of the
government and the regulatory agency, puts the focus on going forward, rather than
refocusing past behaviours. It is a low-cost way of reducing water demand and increas-
ing the emphasis on efficiency in the urban water debate. It helps customers understand
how new water-using household appliances compare from a water-use perspective by
providing information on the Internet and/or at point of purchase. Such a scheme would
also help reduce concerns around rising water prices, and put a stronger emphasis on
valuing water, a key theme in the work of the HLPW (2018). All urban areas have housing
stock undergoing renewal. These areas offer opportunities to alter household and
commercial views on the value of water and improve water efficiency. Existing retailers
of water appliances need to be educated about its importance, and require access to an
independent, trustworthy testing organization. Developing an international WELS is one
way to provide national governments a way to build a coalition in support of a new
domestic scheme. Domestic vested interests will find it harder to argue against stan-
dards that have wide international acceptance. Still, considerable effort will be required
for successful implementation. For such a scheme to deliver results requires ongoing
attention to educating water users and monitoring compliance of commercial interests.
A key function of city administrations and the myriad groups of interested stake-
holders is the planning framework around new buildings, particularly residential apart-
ments and commercial offices. Agreements need to be struck and codes developed
 INTERNATIONAL JOURNAL OF WATER RESOURCES DEVELOPMENT 15

around sensible cost-effective goals for water appliances in new developments, in the
context of the specific urban area. This is very much an existing function where corrup-
tion has been rife, and is well recognized (Water Integrity Network, 2016; Williams &
Dupuy, 2018; Zinnbauer, 2016). It is important for the new development codes to
become a part of the package solution to give all urban inhabitants access to safe
water. Over time, reduced demand from appliances will add capacity to the network, or
increase the number of hours of daily access.
WELS-type schemes directly affect the behaviour of those who have access to some
form of water supply. Their overall impact is profound, in that they free up the valuable
supply source for provision to urban populations currently without a reliable safe supply.
Reducing middle-class demand effectively creates a new supply source that can be
directed toward supply issues in slums and informal settlements.

Proactive actions by WSPs, including reducing system leaks

WSPs and government agencies can contribute directly to improving water use effi-
ciency, and at the same time reduce expenditure on non-core but essential operating
expenses.
While of less importance in Australia, improving pressure control and networking in
the water distribution network can also result in significant water savings, as illustrated
in São Paulo during its 2014–15 drought (SABESP, n. d.). It may well turn out to be a
critical issue in many developing-country urban areas.
Maintenance of water appliances in schools in São Paulo is illustrative of cost-
effective investments, but also providing living examples that can contribute to devel-
oping a water-saving culture and reduce water demand. SABESP suggests that over a
decade its rational-use-of-water programme has reduced per capita consumption in Sao
Paulo by 11% (Braga & Kelman, 2016; SABESP, 2018).
In most cases, demand reduction strategies will be only part of a package of
measures to address overarching issues regarding safe water provision, which will
require investment in developing distribution networks. But they provide a low-cost
starting point that is often ignored. Commercial water users could be encouraged to
pursue similar actions, with the results being communicated to stakeholders including
the general public to help build a more sustainable water-use culture.
WSPs need to be leading the water debate, not following. Even today, nearly 20 years
after the commencement of the Millennium Development Goals, the culture and modus
operandi in many WSPs remains a core problem. The role of governance in addressing
this has been well documented (HLPW, 2018; UN-Water, 2017; World Bank, 2017). Again,
looking forward, there are key areas of action that WSPs can readily examine, within the
ELWC framework discussed above. To do this, a financially strong WSP is essential. In a
corruption-constrained world, this would enable using financial strength to address
emerging needs, including maintaining the network so that both supply and quality
mandates are better met, and being in a position to address growth in new areas of
demand, in both the currently served footprint and the informal sector of urban areas,
one of the most pressing problems in sub-Saharan Africa and India (Heymans et al.,
2016; TERI University, 2017). Focusing service provision on all water consumers requires
a major shift in both management and operations.
16 J. HORNE

Aligning interests
At first sight, reducing demand and cutting revenue will appear antithetical to the
interest of some WSPs, particularly private-sector ones. These tensions are real and
need to be managed through operational licences issued by the water services regu-
lator. A key starting point is that provision of safe water should be a condition of service,
but for many that is clearly not the case. As this is currently an almost impossible
starting point in many urban areas, an alternative would be transparent stepping stones
on the way to this endpoint. In all water-challenged areas, users will look to all potential
water sources, not just the services of the key proximate provider, so the regulatory
framework needs to acknowledge this and operate to ensure regulatory consistency.
The main point here is that all supply will be used: it is a question of how can it be
used effectively and efficiently to service the greatest proportion of the urban popula-
tion, including the oft-neglected urban poor. Higher-income redevelopments in devel-
oping-city urban areas have the option to consider gated community responses, similar
to those seen in Sydney and parts of Melbourne. This could not only reduce demand on
existing services but also be provided at a lower price than would otherwise be charged.
But such responses will not be forthcoming if these developments already have access
to subsidized water.
The growth of the world’s slums and informal settlements continues unabated, and,
not withstanding some areas of real improvement in the position of poor households,
governments have been largely incapable of providing their inhabitants adequate
services, including safe water and sanitation. For example, in Africa, while some cities
have reliable access to ‘improved’ water, there is little solid data on access to ‘safe’ water
(Heymans et al., 2016). In India, 32% of the population do not have access to safe water,
and while 60% of the urban population are served by piped water, the supply is limited
to three hours per day (TERI University, 2017). Pakistan’s overall water quality is said to
be declining rapidly (Daud et al., 2017). Combined with inadequate sanitation, this
produces massive health costs for water-related disease. One partial solution is to
work with international financial institutions such as the World Bank. SABESP’s 2018
contract with the World Bank in São Paulo offers an opportunity to make significant
inroads into the clean-water backlog of the favelas in Sao Paulo in the coming half-
decade (World Bank, 2019).
Discussion of demand reduction in Third World urban areas is at first sight largely
irrelevant, as consumption is limited to bare essentials. Availability in many areas is at
best intermittent, and in others nonexistent. In many areas the focus is properly on
supply-side issues, integrated with urban planning solutions. In India, a role for small
water enterprises in urban areas is gaining traction, but issues around governance and
sustainability in the long term have not been resolved (Safe Water Network, 2018a,
2018b). What is very relevant from our general discussion above is that the demand
reduction options elsewhere in a given city, in its commercial and affluent-household
sectors, would generate a supply source for informal settlements and poor urban
residents. It is hard to see material improvement in the large number of very large cities
of over a million inhabitants, and literally hundreds of medium-sized cities with sig-
nificant urban poor, until proven models of governance and pricing policies gain
sufficient support. There has been much discussion of the importance of consultation
 INTERNATIONAL JOURNAL OF WATER RESOURCES DEVELOPMENT 17

and justice, but few examples of repeatable success. The deepening impacts of climate
change on water supply, including managing water quality at low supply levels, will
make this even more difficult than it is today.

Climate change
Climate change has clearly emerged as a major policy concern alongside the water
allocation issue discussed above. Not only will climate change affect the aggregate
available quantity of water, intensifying extreme events will affect its distribution, in
some areas reducing water availability in traditionally dry periods. Expectation of
adverse effects from climate change should encourage water utilities and governments
to speed up plans to address water efficiency improvements, such as through a WELS
scheme or more expeditiously examining pressure reduction management and recycling
schemes. Of course, in urban areas already struggling to meet demand, this is simply an
additional layer of stress on a water management system. Some urban areas will also
experience adverse impacts on the quality of available water, and consequently on
economic and health outcomes. Again, this is simply another source of stress, where
quality is already inadequate. Understanding the magnitude of this additional stress
could help lay bare the size of the challenge confronting urban areas seeking to address
SDG 6. Governments need to develop the information base through additional research
and to develop and implement appropriate policy responses (Tortajada, Horne, &
Harrington, 2018). In the next decade we could well see the challenges of climate
change undermine the limited progress already achieved in improving access to clean
water and sanitation.

Conclusion
The Australian experience of significant demand reduction over two decades illustrates
how a suite of measures can be used to drive considerable change in water use. By and
large, these measures are low-tech, straightforward demand-side measures. While some
(for example reducing outdoor use) may not be available to water resource managers
elsewhere, many deserve close investigation. Their low fiscal cost and their focus on
establishing water as a valuable commodity are critical for the long term. The resultant
water savings will provide lower-cost opportunities to expand reliable, safe supply
networks into poorer areas and informal settlements than expanding the supply. And
new approaches to providing safe supply, such as India’s use of small water enterprises,
have considerable promise.
In general terms, high-technology solutions involving quality differentiation via dual
pipes seem likely to have more limited applications than reducing demand from tradi-
tional systems, but they may have a role in new, wealthier areas of cities in developing
countries. Again, such use should not be discouraged, as it could also release some
mainstream supply to build new approaches to poor and informal sectors that are
currently unserved or underserved.
Urban areas seeking to achieve the SDGs need to look to a suite of policies,
including price and non-price demand reduction options, to help advance the
quest for universal provision of safe water supply in rapidly growing cities in urban
18 J. HORNE

areas of developing countries. Many cities are currently challenged by governance

and corruption issues, which will make progress very difficult, particularly in a context
of ongoing rural urban migration to informal settlements with little water or sanita-
tion infrastructure. Climate change will exacerbate this challenge. But though these
challenges are massive, they are not insurmountable. They require persistence, as well
as starting with basic, low-cost approaches that have been tested and proved their
worth elsewhere.

Disclosure statement
No potential conflict of interest was reported by the author.

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