Canadian Water Economics



  • Previous efforts to use water have been hampered by out-dated municipal and provincial regulations governing pricing and allocation of water. Provincial governments issue water use permits with little evidence of the value of proposed use; permit pricing has nothing to do with water’s scarcity value. Municipal water pricing remains divorced from the value of water and the marginal costs of supply. The result is over-expanded systems, over-use of water; reliance on ad hoc measures to curb water use in times of shortage and insufficient funds for infrastructure improvements (Renzetti, 1999; Renzetti, 2007).


  • The current regulatory situation around water is changing slowly. Some provinces have raised water permit fees; some municipalities have adopted increasing block rates. The common theme is recognition of water as an economic resource and the willingness to use economic instruments (prices and tradable permits) to promote efficient use. To date, these initiatives have not been coordinated across levels of government and are constrained by the lack of data, models, trained personnel, and institutional capacity. The problem is compounded by the inability of current regulations to deal with competing water demands and the possibility of climate change-induced reductions in supplies. Misallocation of water ultimately threatens aquatic ecosystems and reduces the well-being of current and future Canadians.
  • Given the uncertainty surrounding the potential deleterious impacts of climate change upon water supplies, Canada must use its scarce water supplies in a more efficient and sustainable way than it has in the past. This will ensure that water will produce more value for Canadians by making a greater contribution to Canada’s economy. We have three specific objectives;


1. To close the gap in what is known regarding factors governing water use, firms and households’ valuation of water, and decisions to adopt water-conserving technologies

2. To develop and apply specific templates for the design of efficient municipal water pricing rules and provincial water allocation mechanisms and enhanced water demand forecasting methods.

3. To translate knowledge regarding estimated water demands, the design of efficient water prices, efficient provincial allocation rules and water demand forecasting methods to partners and end users. Implementation of this information will lead to improved rate-setting and allocation rules, more efficient water use decisions and, ultimately, an increase in the value enjoyed sustainably from water.