Research on Water Price and Quantity to Meet the Basic Living Needs of Urban Residents based on Water Conservation

doi:10.21203/rs.3.rs-3139351/v1

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Research Article

Research on Water Price and Quantity to Meet the Basic Living Needs of Urban Residents based on Water Conservation

https://doi.org/10.21203/rs.3.rs-3139351/v1

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published 09 Feb, 2024

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Water price is an economic approach to effectively promote urban residents to save water. However, due to the excessively large water volume and low water price of each step in the stepped water pricing model, the water-saving effect of urban residents is not obvious. Determining the first-step water price and water volume for urban residents has become an urgent issue to be solved both in theory and practice. Based on the basic water demand characteristics of urban residents, this study employs the extended linear expenditure system model (ELES) and quadratic approximate ideal demand function model (QUAIDS) to formulate an improved water demand-price function. The improved function model can describe the nonlinear relationship between urban residents' water demand and water price. Then, based on the questionnaire survey data of Zhengzhou City, combined with the improved QUAIDS model and the Ramsey pricing method, a system of equations is built to calculate the first-step water price and water volume that meet the basic living needs of urban residents. This method not only focuses on water conservation for urban residents but also considers their basic water needs and the water supply costs of enterprises. This study provides a theoretical basis and practical guidance for reforming urban water prices and promoting resource conservation in China.

water conservation

urban residents

the first-order water Price

the basic living need

● By introducing the extended linear expenditure system model (ELES), this study constructs an improved quadratic approximate ideal demand function model (QUAIDS) based on the basic characteristic demand of urban residents and the nonlinear relationship between their water demand and water price.

● Several factors are extended to this improved QUAIDS, such as water scarcity, household size, household disposable income, and water supply costs, and the The scarcity degree of water resources is innovative in this study.

● Based on the questionnaire survey data of Zhengzhou City, this study construct a set of equations based on the improved QUAIDS, and combined with the Ramsey pricing to calculate the basic water price and water quantity to meet the basic living needs of urban residents.

● The results show that the basic water volume for drived from this study for urban residents in Zhengzhou City is reduced by 35 cubic meters per year compared with the current water volume standard, and the water price is more higher, which can promote urban residents to save water by households.

Water resources are crucial for economic and social development. At present, many countries are experiencing or will face the problem of water shortage or even depletion. The shortage of water resources has become a bottleneck limiting economic and social development in many countries^[1][2]. China's water resources are also not sufficient, with a per capita freshwater share of only 1/4 of the world average^[3], making it one of the countries with the least per capita water resources in the world. At present, about 60% of cities in China suffer from the problem of water resource shortage, with 110 cities experiencing severe water shortages. The total annual water shortage in Chinese cities has exceeded 6 billion cubic meters. Statistics show that in recent years, the annual growth rate of industrial and agricultural water in China declines, while that of total residential water increases year by year. Especially after 2014, due to the rapid urban development and the improvement of people's living standards, the per capita water consumption for urban residents in China has surged, intensifying the contradiction between the insufficient water supply and the rapid growth of urban residents' water demand.

To effectively solve the problem of water shortage, the government usually starts from the supply side, i.e., by developing new water sources or constructing new water conservancy facilities to increase the water supply^[4][5]. For instance, China will transfer water resources from relatively rich southern regions to relatively scarce northern regions by constructing the South-to-North Water Transfer Project. Although the supply-side policies or measures can increase the water supply, they are still difficult to meet the rapidly growing water demand of the urban population, and the construction of water conservancy projects has high costs, which makes water resources more and more expensive^[6]. In recent years, an increasing number of countries have begun to pay attention to demand-oriented solutions, taking these demand-side policies or measures as a necessary supplement to or even a substitute for traditional supply-side measures. The core of demand-side policies or measures is to promote water conservation for urban residents through reasonable policies^[7], thereby achieving efficient utilization of water resources ^[8][9].

Currently, most Chinese cities adopt a tiered water pricing policy, which indicates that the more water consumption, the higher the unit price of water. This is a punitive charging system for excessive water usage. A lot of research has been conducted on water prices abroad, and it is generally considered that tiered water prices can better improve residents' water-saving awareness compared to a single water price^[10]. However, domestic research on water prices mainly is conducted from qualitative and quantitative perspectives. Qualitative research mainly focuses on that the tiered water pricing policy is superior to a single water pricing policy because it can guide residents to save water through price leverage^[11]. Meanwhile, quantitative research mainly focuses on the price elasticity of residential water demand^[12][13], their affordability^[14], the setting of tiered water volume and pricing parameters for one city, as well as the expected water-saving effect in a city^[15][16][17]. According to the real situation of tiered water pricing in China, the implementation of the tiered water pricing policy has alleviated the water shortage problem to a certain extent. However, there are still problems such as overall low water prices, weak water-saving awareness, and unclear water-saving behaviors. Additionally, the proportion of household water consumption expenditure to household disposable income in most Chinse cities is less than 1%^[18], and the setting of each water price step and volume is unreasonable^[19][20][21], especially the low first water price step and excessive water volume, which leads to less significant water conservation effects of urban residents^[22][24].

In practice, the water demand of urban residents has the characteristics of general commodities and its special attributes. This is because water is not only a basic daily necessity but also an intermediate necessity and even a luxury good ^[24]. For instance, water for daily drinking, cooking, and basic sanitation belongs to basic daily necessities that can meet the basic needs of urban residents in daily life; Water for washing machines and mopping floors is an intermediate demand, while water for swimming, garden watering, and pet bathing is a luxury. Generally, basic necessities, intermediate goods, and luxury goods have different Engel curves. The water demand of urban residents has the attributes of these three types of goods at the same time, so these characteristics determine that the relationship between the water demand and water price is not simply linear.

Although the existing studies on water prices have achieved fruitful results, they mainly focus on the setting of tiered water prices but less consider how to formulate a reasonable water price and volumes of each step and ignore the nonlinear characteristics of the price elasticity of residential water demand, as well as the reality of residential water demand including basic and non-basic needs. Meanwhile, existing studies mainly establish pricing models from the perspectives of water supply costs and residents' affordability, without considering the impact of water scarcity on residents' water prices under limited water supply. The above factors are not conducive to the efficient allocation of water resources, water conservation for residents, as well as sustainable economic, social, and ecological development.

Based on the characteristics of basic urban residents' water demand and their non-linear relationship with water prices, this study establishes an improved quadratic approximate ideal demand function model. Urban residents' water demand factors such as household disposable income, household population size, local annual average temperature, water scarcity degree, and water supply costs have been included in the model. That is, the model considers not only the basic water demand of urban residents but also the nonlinear relationship between urban residents' water demand and water prices. The rest of this paper is organized as follows: Section 2 introduces variable selection, Section 3 describes the model establishment, Section presents the results, and Section 5 provides the discussion.

2.1 Indicator selection

According to existing research, many related factors affect water prices, mainly including economic factors, social factors, environmental factors, engineering factors, and policy factors. This study summarizes these factors and reclassifies them into supply and demand factors.

Literature analysis indicates that existing studies have focused on issues such as water prices, demand and supply, and the related research methods include quantitative and qualitative ones. From the perspective of supply, existing research suggests that multiple factors can affect water supply, including the scarcity degree of water resources^[26], water quality^[27], economic development level^[28], and social development level^[29]. These factors basically affect water supply costs and ultimately affect water prices. Due to the severe shortage of urban water resources in China, the scarcity degree of water resources is receiving increasing attention. For instance, Hu Xingmin believes that the scarcity degree of water resources reflects its scarcity value, and there are differences in scarcity degree in time and space, leading to differences in water prices^[30]. Zhou Changyong and Zhong Mianzhi also believe that there are significant differences in the scarcity degree of water resources in different regions, resulting in different supply and demand relationships, which further affect its marginal value and water supply prices. Meanwhile, natural water needs to be exploited to meet the water demand of residents, so the quality of water resources will also affect water supply costs ^[31]. Besides, because the water supply is related to people's livelihood and social stability, the essential difference between urban residents' domestic water and industry and farm water is that residents' domestic water especially needs to ensure water quality and quantity, so it is highly affected by the scarcity degree of water resources. Therefore, this study considers water supply costs and the scarcity degree of water resources as factors that affect water prices.

From the perspective of demand, factors that affect water demand are mainly household internal factors, such as household disposable income, the number of household populations, etc. Due to the development of the economy and society, the per capita disposable income is increasing, and the material level of urban residents has greatly improved. Generally, the higher the disposable income of urban households, the more water bills they will spend, which indicates that their water demand will rise^[32][33]. Therefore, the disposable income of households is also an important influencing factor of water prices. Additionally, the number of household populations is a common indicator that has been extensively studied in existing literature. Most studies believe that household disposable income and household population^[34][35][36] are key factors that significantly affect residents' water demand.

Based on the above analysis, this paper selects factors such as the scarcity degree of water resources, the cost of water supply, household disposable income, and the number of household populations as key factors for urban water prices.

2.2 Indicator measurement

Following the above research, this study selects water supply costs, household disposable income, the number of household populations, and the scarcity degree of water resources as key influencing factors. The specific measurement methods are introduced below.

① The scarcity degree of water resources

Referring to the absolute scarcity theory of Thomas Robert Malthus and the land resource scarcity model proposed by Zhang Lin, this study analyzes and constructs the water resource per capita of Chinese cities in line with the current situation and the supply-demand ratio, which is then used to characterize the scarcity degree of water resources. The specific measurement methods are as follows.

S = WC/WR*100% (2 − 1)

where S (scar) represents the scarcity degree of water resources in the city where residents live, WS represents residents' water supply. In this study, residents' water demand can be characterized by the current per capita water consumption (WC) of urban residents, and residents' water supply can be represented by the per capita water resources of each city. By calculating the ratio of total urban water resources to population, the per capita water supply of urban residents can be obtained, which is the water resources per capita of the city. According to Eq. (2 − 1), the larger the value of the scarcity degree of water resources, the more scarce the water resources in the region are.

② water supply cost.

According to the current "minimum profit" water pricing policy in China and the research conducted in this study, the cost price announced by the official is its water supply cost. Therefore, the water supply cost in this study, represented as MC, is obtained from official data, as listed in Table 2 − 1.

Table 2

− 1 The current tiered water pricing for residents in Zhengzhou City
Tiered Water Price	Price(yuan)	amount of water (cubic meter)	Sewage treatment fee	water resource tax	Paid-in water price
First step	3.1	0-180	0.95	0.35	4.4
Second step	4.65	181–300	0.95	0.35	5.95
Third step	9.3	Above 300	0.95	0.35	10.6

③Household disposable income.

There is a significant positive correlation between household disposable income and household water consumption, i.e., household water consumption increases with household disposable income. PCDI (Per Capita disposable income) is adopted to represent the disposable income of urban households, and the specific data is obtained from the questionnaire survey in this study.

④ The number of household populations

This indicator is measured by the actual number of household population, represented by size. The specific data is obtained from the questionnaire survey of this study.

3.1 Design of the water demand-price function of urban residents based on ELES

At present, Chinese cities have implemented a stepped water pricing policy. To effectively analyze the characteristics of urban residents' water demand, this paper regards water in different price ranges as different commodities. Based on this, this study adopts ELES to construct the water demand-price function in different price ranges and analyze the characteristics of urban residents' basic water demand.

First, the total utility function of urban residents' consumption expenditure is constructed based on the ELES, as shown in Eq. (3 − 1):

$U=b\bullet ln\left(x-\stackrel{-}{x}\right)+{b}_{i}\bullet {\sum }_{i=2}^{n}\text{l}\text{n}({x}_{i}-{\stackrel{-}{x}}_{i})$ (3 − 1)

The constraints for maximizing the total utility of urban residents' consumption expenditure are as shown in Eq. (3 − 2):

$p\bullet x+\sum _{i=2}^{n}{p}_{i}{x}_{i}-M=0$ (3 − 2)

where $p$ represents the water price, ${p}_{i}$ refers to the price of other goods purchased by urban residents (except water expenses), and M refers to the total household consumption expenditure.

Eq. (3 − 1) can be further converted into a Lagrange function, as shown in Eq. (3–3):

$L({x}_{1},{x}_{2},{x}_{3},\dots ,{\lambda })=b\bullet ln\left(x-\stackrel{-}{x}\right)$ +${b}_{i}\bullet \sum _{i=2}^{n}ln\left({x}_{i}-{\stackrel{-}{x}}_{i}\right)+{\lambda }\left(M-\sum _{i=2}^{n}{p}_{i}{x}_{i}\right)$ (3–3)

Therefore, the constraint for maximizing the utility function L in Eq. (3–3) can be expressed in Eq. (3–4):

$\left\{\begin{array}{c}M-\sum _{i=1}^{n}{p}_{i}{x}_{i}=0\\ \frac{\partial L}{\partial {x}_{i}}=\frac{b}{x-\stackrel{-}{x}}-\lambda \bullet p\\ \frac{\partial L}{\partial {x}_{i}}=\frac{{b}_{i}}{{x}_{i}-{\stackrel{-}{x}}_{i}}-\lambda \bullet {p}_{i},(i=\text{2,3},\dots .,n)\end{array}\right.$ (3–4)

According to the calculation and under the condition of maximum utility, the relationship between urban residents' water consumption and other commodity consumption is presented in Eq. (3–5):

$\frac{b}{p(x-\stackrel{-}{x})}=\frac{{b}_{i}}{{p}_{i}({x}_{i}-{\stackrel{-}{x}}_{i})}$ (3–5)

After conversion, Eq. (3–6) is obtained.

${b}_{i}p(x-\stackrel{-}{x})=b{p}_{i}({x}_{i}-{\stackrel{-}{x}}_{i})$ (3–6)

By summing all commodities i in Eq. (3–6), the expenditure E of water consumption of urban residents can be obtained in Eq. (3–7):

$E=p\stackrel{-}{x}+\frac{b}{\sum _{i=1}^{n}{b}_{i}}(M-\sum _{i=2}^{n}{p}_{i}{\stackrel{-}{x}}_{i})$ (3–7)

Assume $\beta =\frac{b}{\sum _{i=1}^{n}{b}_{i}}$, where $\beta$ indicates the marginal consumption tendency of urban residents. Then, Eq. (3–8) can be obtained as follows:

$E=p\stackrel{-}{x}+\beta (M-\sum _{i=2}^{n}{p}_{i}{\stackrel{-}{x}}_{i})$ (3–8)

Let ${\alpha }=p\stackrel{-}{x}-\beta \sum _{i=2}^{n}{p}_{i}{\stackrel{-}{x}}_{i}$ and replace M with the disposable income I of urban households, Eqs. (3–9) and (3–10) can be obtained:

$E={\alpha }+\beta I$ (3–9)

$p\stackrel{-}{x}={\alpha }+\beta \frac{\sum _{i=2}^{n}{{\alpha }}_{i}}{(1-\sum _{i=2}^{n}{\beta }_{i})}$ (3–10)

Finally, the water demand of urban residents under the condition of a single price can be obtained in Eq. (3–11):

$x=\stackrel{-}{x}+\frac{\beta }{p}(I-\sum _{i=2}^{n}{p}_{i}{\stackrel{-}{x}}_{i})$ (3–11)

where $x$ denotes the total water consumption of urban residents, $\stackrel{-}{x}$ denotes the water consumption of urban residents to meet their basic living needs, $p$ denotes the water price, ${p}_{i}$ denotes the price of other commodities, and ${\stackrel{-}{x}}_{i}$ denotes the total consumption of residents for other commodities. Based on the above derivation, this study surveys the income and consumption expenditure of urban households and obtains relevant data.

Then, OLS regression is applied to estimate${\alpha }$ and $\beta$, and by inspecting the two parameters, the water demand-price function of urban residents is obtained.

3.2 Design of the improved water demand-price function of urban residents based on QUAIDS

3.2.1 Limitations of the water demand-price function of urban residents based on ELES

This paper adopts ELES to estimate the relevant parameters according to the income and consumption of urban residents, and the water demand-price function of urban residents is obtained based on ELES. According to the function, the estimation of the marginal consumption tendency $\beta$ of urban residents' water demand is constant, i.e., the consumption budget share of urban residents' water consumption increases linearly with the urban residents' income. However, the relationship between urban residents' water consumption budget share and household disposable income may not be linear. For example, when the water price does not change, with the increase of household disposable income, the budget share of urban residents' water consumption shows a marginal decline feature instead of a proportional growth trend. Meanwhile, changes in water prices will also affect the budget share of urban residents' water consumption. For instance, when household disposable income does not change and water price rises, it is necessary to increase household water consumption expenditure to meet the previous water demand and the budget share of household water consumption will increase.

Additionally, the water demand-price function based on ELES can only analyze the impact of household disposable income and water price on the water demand of urban residents. However, in practice, the water demand of urban residents is not only subject to household disposable income and water price but also household population, water supply cost, and other factors. Therefore, only using the water demand-price function of urban residents has limitations in analyzing the relationship between urban residents' water demand and water price.

Based on the above analysis, this study adopts the quadratic approximate ideal demand system function (QUAIDS) and combines it with the water demand-price function to establish an improved water demand-price function. The improved function can more comprehensively and effectively analyze the relationship between urban residents' water demand and water price.

3.2.2 Improvement of the water demand-price function of urban residents based on QUAIDS

Compared with ELES, QUAIDS has two advantages: (1) QUAIDS fully considers the non-linear characteristics of residents' consumption expenditure on commodities, and it fits with the theory of diminishing marginal utility; (2) The QUAIDS can be expanded according to the consumption characteristics of residents, such as the number of family population, annual average temperature, etc. Because of this, QUAIDS has been widely used in theory and practice.

Following the literature [24], the water consumption expenditure of urban residents can be divided into two components: water expenditure to meet the basic living needs and exceeding the basic living needs. That is, the share of urban residents' water budget expenditure is not only subject to household disposable income and water price but also to the consumption expenditure of basic living needs. Thus, this study further expands QUAIDS and incorporates factors such as the water expenditure to meet the basic living needs of urban residents, the number of household populations, as well as the annual average temperature of the city where the household is located into the function. At last, the improved water demand-price function of urban residents based on the QUAIDS is constructed.

Assuming that there are n types of commodities to meet the living needs of urban households, the living consumption expenditure is $\sum _{2}^{n}{p}_{i}{q}_{i}$ (excluding the basic water expenses). Therefore, the basic domestic water consumption $\stackrel{-}{q}$ of urban households can be estimated by the water demand-price function of urban residents based on ELES, as shown in Eq. (3–12):

$\stackrel{-}{q}=q-\frac{\beta }{p}(I-\sum _{i=2}^{n}{p}_{i}{q}_{i})$ (3–12)

After the above household living consumption expenditure is excluded (i.e., excluding the basic expenditure for water consumption), the remaining household disposable income is ${I}^{{\prime }}=I-\sum _{2}^{n}{p}_{i}{q}_{i}$. When basic water consumption expenditure $p\stackrel{-}{q}$ is eliminated, the additional water consumption expenditure that exceeds the basic water consumption is [pQ]^'=pQ-pq ̅, as shown in Eq. (3–13).

${\omega }^{{\prime }}=\frac{p{Q}^{{\prime }}}{E}=\alpha +\sum _{j=1}^{n}{\gamma }_{ij}\bullet \text{l}\text{n}\left(p\right)+\beta \bullet ln\left[\frac{{I}^{{\prime }}}{\text{a}\left(p\right)}\right]+\frac{\lambda }{b\left(p\right)}\bullet {\left\{ln\left[\frac{{I}^{{\prime }}}{\text{a}\left(p\right)}\right]\right\}}^{2}$ (3–13)

where E denotes the total household expenditure, and ${lna}\left(p\right)$ is the translog function of the water price p of urban residents. The specific function form is shown in Eq. (3–14).

${lna}\left(p\right)={\alpha }_{0}+\alpha \bullet lnp+\frac{1}{2}\gamma {\left(lnp\right)}^{2}$ (3–14)

where $b\left(p\right)$ is the Cobb-Douglas price function of water price p of urban residents. The specific function form is shown below.

$b\left(p\right)={p}^{\beta }$ (3–15)

Then, the basic form of urban residents' water demand-price function based on QUAIDS can be expressed in Eq. (3–16).

${\omega }^{{\prime }}=\frac{p{Q}^{{\prime }}-p\stackrel{-}{q}}{E}=\alpha +\gamma \bullet lnp+\beta \left[ln{I}^{{\prime }}-{\alpha }\bullet \text{l}\text{n}p-\frac{1}{2}\gamma {\left(lnp\right)}^{2}\right]+\frac{\lambda }{{p}^{\beta }}{\left[ln{I}^{{\prime }}-{\alpha }\bullet \text{l}\text{n}p-\frac{1}{2}\gamma {\left(lnp\right)}^{2}\right]}^{2}+\epsilon$ (3–16)

First, the basic domestic water consumption $\stackrel{-}{q}$ of urban households is estimated using the water demand-price function of urban residents based on ELES; second, $\stackrel{-}{q}$ is substituted into Eq. (3–16), and the parameters in Eq. (3–16) can be estimated. Then, the relationship function between the water demand of urban residents and the water price can be established. In this way, the improved water demand-price function of urban residents based on QUAIDS can be obtained, as shown in Eq. (3–17).

$$\frac{p}{E}\text{Q}=\frac{p}{E}\stackrel{-}{\text{q}}+\alpha +\gamma \bullet lnp+\beta \bullet \left[ln{I}^{{\prime }}-{\alpha }\bullet \text{l}\text{n}p-\frac{1}{2}\gamma {\left(lnp\right)}^{2}\right]$$

$+\frac{\lambda }{{p}^{\beta }}{\left[ln{I}^{{\prime }}-{\alpha }\bullet \text{l}\text{n}p-\frac{1}{2}\gamma {\left(lnp\right)}^{2}\right]}^{2}+{\epsilon }^{{\prime }}$ (3–17)

According to the research of Bank et al., QUAIDS is an extensible function, i.e., other influencing factors can also be extended into the function in the form of a natural logarithm. As the water demand of urban residents is not only affected by disposable income but also by other factors, such as the scarcity degree of water resources and the average temperature in the city where the household is located, the number of household populations, etc., this study also incorporates these factors into the function. Represent the number of household population by size, the disposable income of household by PCDI, the scarcity degree of water resources in the city where the household is located by scale, and the average temperature by temp; then, the improved water demand-price function of urban residents is shown in Eq. (3–18).

$$\frac{p}{E}\text{Q}=\theta \bullet \frac{p}{E}\stackrel{-}{\text{q}}+\alpha +\gamma \bullet lnp+\beta \bullet \left[ln{I}^{{\prime }}-{\alpha }\bullet \text{l}\text{n}p-\frac{1}{2}\gamma {\left(lnp\right)}^{2}\right]$$

$+\frac{\lambda }{{p}^{\beta }}{\left[ln{I}^{{\prime }}-{\alpha }\bullet \text{l}\text{n}p-\frac{1}{2}\gamma {\left(lnp\right)}^{2}\right]}^{2}+{\phi }_{1}lnsize+{\phi }_{2}lnPCDI+{\phi }_{3}lnscar{+\phi }_{4}lntemp+{\epsilon }^{{\prime }}$ (3–18)

By using Eq. (3–18), the price elasticity of urban residents' water demand corresponding to the water price can be further calculated, and the basic water demand price under the equilibrium condition of demand and supply be obtained by combining the Ramsey pricing.

3. 3 Calculation of water price for urban residents based on demand-supply

By constructing the demand-price function of urban residents based on the improved quadratic approximate ideal function, this study can analyze the relationship between urban residents' water demand and price and calculates the demand-price elasticity. Meanwhile, the improved demand-price function of urban residents needs to consider supply factors, i.e., both supply and demand, to calculate the basic water price of urban residents. The Ramsey pricing method incorporates demand elasticity and supply cost into the same analysis framework, so it can be used in this study.

According to Ramsey pricing, the price elasticity $\epsilon$ of urban residents' water demand can be obtained from the improved demand-price function and the Ramsey coefficient $R=\frac{\lambda +1}{\lambda }$. Therefore, the water price corresponding to the maximization of consumption surplus urban residents can be calculated, as shown in Eq. (3–19).

$p=\frac{MC}{1-R/\left|\epsilon \right|}$ (3–19)

where $p$ is the water price of urban residents, $MC$ denotes the water supply cost, $R$ is the Ramsey coefficient, and $\epsilon$ denotes the price elasticity of water demand of urban residents.

According to the Ramsey pricing method, when the Ramsey coefficient $R$ falls within 0 ~ 0.1, the consumer welfare surplus of urban residents and the profit of water supply enterprises can reach an overall equilibrium state. When Ramsey coefficient $R=0$, water supply enterprises can achieve cost recovery. Therefore, by using the improved water demand-price function, the basic water price and consumption that can meet the basic needs of urban residents and the water supply enterprises can achieve cost recovery, and partial profits can be obtained finally.

4.1 Overview of Water Resources in Zhengzhou City

As the capital of Henan Province in China, Zhengzhou has a permanent resident population of 12.828 million by the end of 2022, with a per capita water resource occupancy of 123 cubic meters, which is about 1/16 of the national average and only 1.5% of the world average. The scarcity degree of water resources in Zhengzhou City is 58.02, which is significantly higher than the national average of 13.21. Considering the per capita water resource occupancy or the scarcity degree of water resources, Zhengzhou City is in a serious shortage of water resources. Meanwhile, this study compared the scarcity degree of water resources in Zhengzhou City in the past decade and found that it is generally on the rise (as shown in Fig. 4 − 1). On the one hand, this is due to the rapid increase in urban population, and the water consumption of urban residents in Zhengzhou has been increasing year by year; On the other hand, as household income increases, residents' water consumption also gradually increases.

In recent years, although Zhengzhou City has continuously increased its water resource supply in various ways such as the South to North Water Diversion and the construction of reservoirs, the overall contradiction between water supply and demand remains prominent. At present, though a tiered water pricing policy has been implemented, the water pricing standard for tiered water pricing is relatively low, and the tiered water quantity standard is relatively high, causing insufficient water conservation for residents. Thus, designing a reasonable basic water price and water volume plan can help residents to save water and improve their water efficiency utilization.

4.2 Questionnaire survey

This study conducted a comprehensive questionnaire survey on water prices among urban households in Zhengzhou. 130 questionnaires were distributed and 123 questionnaires were collected finally. After invalid or unqualified questionnaires were excluded (such as filling out questionnaires for no more than 120 seconds, significant abnormalities in household disposable income, household consumption expenditure, etc.), a total of 111 valid questionnaires were collected, with an effective rate of 85.38%. The descriptive statistical analysis results of the sample data in the survey questionnaire are shown in Table 4 − 1.

Table 4

− 1 Descriptive Statistical Analysis of Survey Samples in Zhengzhou City
Variable	Obs	Mean	Std.Dev	Min	Max
Household water consumption (cubic meters/year)	111	177.892	318.412	3.600	842.000
The number of households (person)	111	3.892	1.296	2.000	9.000
Household disposable income (thousand yuan/year)	111	148.357	166.194	3.000	1400.000
Household consumption expenditure (thousand yuan/year)	111	82.843	118.827	5.000	1200.000
Household water expenditure (yuan/year)	111	742.487	890.656	12.000	6000.000

In terms of urban household water consumption, the average annual water consumption of households is about 178 cubic meters, equivalent to 14.8 cubic meters per month, which approximates the first-tier water consumption of 180 cubic meters per year in Zhengzhou. The minimum water consumption of residential households is 3.6 cubic meters, and this is mainly due to the small water consumption of individual single households. The maximum water consumption is 842 cubic meters, and this is mainly due to the high water consumption of some high-income households, including household swimming pool water and garden watering. For urban households in Zhengzhou, the average number of populations is 3.892. Based on the water consumption of households, the average annual water consumption per capita is about 45.73 cubic meters. Meanwhile, the average annual income of urban households in Zhengzhou is about 148400 yuan, with a per capita disposable income of 38100 yuan, which is lower than the national per capita disposable income of 49300 yuan in 2022. This may be because the overall economic level of Henan Province is lower than the national average, and the per capita disposable income of Zhengzhou City is also lower than the national urban average. The average annual consumption expenditure of households in Zhengzhou is 82800 yuan, and the average annual water bill expenditure of households is 742 yuan. Additionally, since there is only one city, Zhengzhou, the annual average temperature is no longer included in the function.

4.3 Empirical and Result Analysis

(1) Empirical evidence

Firstly, this study employed the ELES model for regression analysis and estimation. As shown in Table 4 − 2, the annual basic water demand of urban households in Zhengzhou City is approximately 144.72 cubic meters per year. As the average number of household populations in Zhengzhou is 3.89, the annual basic water demand per capita of urban households is calculated to be approximately 37.2 cubic meters per year.

Table 4

− 2 The Regression Results of ELES in Zhengzhou City
var	Coef.	Std. Err.	P>\|t\|	[95% Conf. Interval]
α	144.721	14.589	0.000	115.789	173.652
β1	0.032	0.054	0.045	-0.008	0.139
β2	0.025	0.036	0.031	-0.004	0.115
β3	0.011	0.022	0.067	-0.003	0.101

Through investigating Zhengzhou Waterworks in February 2023, this study obtained its water supply cost, which is 3.1 yuan/cubic meter. By combining the improved QUAIDS (Table 4 − 3) and the Ramsey pricing, the demand price elasticity under the above cost condition is obtained to be -0.43. Based on the Ramsey coefficient interval R = 0 ~ 0.1, this study further solves the corresponding water price range, which is 3.10 yuan to 4.04 yuan, and it can be defined as the water price that meets the basic needs of urban residents in Zhengzhou City.

Table 4

− 3 The Regression Results of the QUAIDS
var	Coef.	Std. Err.	P>\|t\|
θ	1.6850	0.2483	0.0000
α	0.9542	1.8308	0.6040
β	2.5740	4.3492	0.0560
γ	-0.6541	0.3652	0.0370
λ	-0.0025	0.0020	0.2200
φ1	0.0120	0.0101	0.0360
φ2	0.0223	0.0131	0.0310

The actual water fees paid by urban residents in China include urban sewage treatment fees and water resource taxes, which are 0.95 yuan and 0.35 yuan, respectively. Considering this, the final range of basic water fees for urban residents in Zhengzhou should be 4.4 yuan to 5.34 yuan, which can be defined as the water fee to meet the basic needs of urban residents in Zhengzhou.

(2) Result

Finally, the comparison with the first-step water price and water volume in the existing tiered water prices is listed in Table <link rid="tb5">4</link>–4.

Table 4

4 Comparison between the Basic Demand Scheme Design and the Existing First-step Standards
Tiered water price	Water price (Yuan/cubic meter)	amount of water (Cubic meter/year)
Basic demand water pricing scheme guided by water conservation	4.4—5.34	<=145
the existing first-step pricing	4.4	<=180

It can be seen from the above table that the basic-demand water price guided by water conservation is higher than the existing first-step water price. The basic-demand water price guided by water conservation balances both supply and demand, and it also guides urban residents to save water through increased water prices. However, the current first-step water price in Zhengzhou city is relatively low. Although the relatively low first-step water price can ensure the breakeven operation of water supply enterprises, it is difficult to achieve profit, which is not conducive to the long-term development of enterprises and the improvement of service quality. Additionally, the low first-step water price is difficult to promote residents to save water in Zhengzhou. When the Ramsey coefficient is set to R = 0, the water supply enterprise can only achieve cost recovery, i.e., when the water fee is priced at 4.4 yuan/cubic meter, water supply enterprises only achieve cost recovery, but no profit is provided for its sustainable development. Therefore, setting the first-step water price to 5.34 yuan can not only enable enterprises to achieve partial profits and promote long-term development but also improve water conservation for residents. Meanwhile, the current first-step water volume in Zhengzhou is 180 cubic meters per year, which is higher than that of the basic water demand scheme, which is not conducive to water-saving for urban households. Therefore, adopting 145 cubic meters per year as the first-step water volume is more beneficial to water-saving for urban residents.

From an economic perspective, price is a market-oriented means of regulating demand and supply. When Ceteris paribus, raising prices will reduce or restrain consumer demand. Based on supply and demand balance, this study designed a basic-demand water price guided by water conservation. The increase in water price suppresses the demand for water resources by urban residents, thereby effectively promoting their water conservation. Besides, by setting a lower basic water quantity, this study not only ensures the basic water demand of urban households but also raises the overall water price, especially the water price exceeding the basic demand, thereby greatly improving the water resource utilization of urban residents. To sum up, setting a higher water price and a lower basic water quantity can not only meet the basic water needs of urban residents but also effectively promote their water conservation, thus balancing basic water needs and conservation.

By constructing a water-saving oriented pricing model for urban residents' basic needs, this study conducted exploratory research on the issue of water prices for urban residents in Zhengzhou through questionnaire survey research and empirical analysis. The following conclusions are obtained.

(1) The water prices of urban residents are affected by various factors, such as the scarcity degree of water resources, the number of urban households, and disposable income, which have a significant positive impact on their water demand. That is, the increase in the three factors can significantly increase their water demand. This is because as the scarcity degree of water resources increases, the cost of water supply also increases, thereby affecting water prices. Meanwhile, with the increase in disposable income of residents, they begin to pursue a better life with better material living, including purchasing fully automatic washing machines, dishwashers, etc., which increases the demand for water, especially luxury water. Additionally, there are some basic characteristics of water demand in urban households, such as the larger the number of household populations, the greater the basic living needs.

(2) By establishing a comprehensive water price model based on demand and supply and using a survey questionnaire, this study calculated the water price of the basic demand for households in Zhengzhou to be about 4.4–5.34 yuan/cubic meter, corresponding to a water volume of 144.72 cubic meters/year. Compared with the existing tiered water prices, the proposed water price based on the basic needs of urban households has increased by 0.94 yuan. This is not only conducive to the sustainable development of enterprises but also considers the affordability of residents and further promotes water conservation for urban residents. Additionally, compared to the existing tiered water volume, the water volume corresponding to the basic demand has decreased by 35 cubic meters per year. Promoting household water conservation greatly improves the conservation of water resources in the city at a macro level and alleviates the contradiction between the scarcity degree of water resources in Chinese cities and the increasing demand of the people.

Currently, the scarcity degree of water resources in Chinese cities is relatively high, and most cities face the problem of either water shortage or severe water shortage. Only by effectively promoting water conservation for urban residents can people's livelihoods and economic and social development be ensured. Price is an important factor affecting demand, and water-saving oriented water pricing design for urban residents is an important means to promote water conservation for urban residents. However, because of the different water needs of urban residents from those of industry and agriculture, water pricing design not only involves people's specific lives but also is closely related to economic and social development. Besides, residents also have high requirements for water quality standards, but there are few alternatives. The elasticity of residents' water demand presents nonlinear characteristics, which are all issues that need to be considered in water-saving oriented urban water pricing design. When the water price increases, the water demand of urban residents begins to decline, which indicates that water prices can promote water-saving; When the water price increases to a certain extent, the basic needs of urban residents are further highlighted. To ensure basic domestic water needs, such as daily drinking, cooking, bathing, etc., residential households are not sensitive to changes in water prices at this time; finally, when water price further increases, it affects the basic needs of residents and affects the overall economic and social development. Therefore, the key to water-saving oriented urban water pricing is promoting water conservation of urban residents while ensuring their basic water needs. Moreover, the cost of water supply for enterprises also needs to be considered, as long-term losses are not conducive to the development of the enterprise. Therefore, based on the research conclusions of this study, the following policy recommendations are provided.

(1)When designing tiered water prices for Chinese cities, both supply and demand factors should be considered. Firstly, in terms of demand, it is not only necessary to consider the impact of factors such as household disposable income and the number of household populations but also the basic needs of households. That is, the water pricing design should not affect people's normal life and economic and social development while promoting water conservation. Secondly, in terms of supply, the long-term marginal cost of enterprises should be mainly considered to ensure that enterprises can recover production costs and obtain appropriate benefits, thereby achieving long-term sustainable development of enterprises and improving the service quality.

(2)The number of household populations is also an important factor to consider. The results demonstrate that household water demand has a significant positive impact, i.e., the larger the number of household populations, the greater the household water demand. The design of water prices for urban residents should not only promote resident households to save water but also meet their basic water needs. Due to the differences in the number of household populations, the standard for water quantity should be determined based on the population of the households. Some cities have attempted to determine different water quantities for different households each year based on changes in the number of household populations.

(3) When promoting water conservation for urban residents through a water pricing policy, other related supporting measures are required. Although the implementation of effective tiered water prices is the key to promoting water conservation among urban residents, other related supporting measures still needs to be improved, including increasing residents' water-saving awareness, promoting water-saving subsidies, and constructing water-saving standards for household appliances.

Funding

The authors declare that no funds, grants, or other support were received during the preparation of this manuscript.

The authors have no relevant financial or non-financial interests to disclose.

Author Contributions

All authors contributed to the study conception and design. Material preparation, data collection and analysis were performed by zhang shujing. The first draft of the manuscript was written by zhang shujing and all authors commented on previous versions of the manuscript. All authors read and approved the final manuscript.

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Research on Water Price and Quantity to Meet the Basic Living Needs of Urban Residents based on Water Conservation

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Abstract

Figures

Highlight

1 Introduction

2 Index selection

2.1 Indicator selection

2.2 Indicator measurement

3 Models

3.1 Design of the water demand-price function of urban residents based on ELES

3.2 Design of the improved water demand-price function of urban residents based on QUAIDS

3.2.1 Limitations of the water demand-price function of urban residents based on ELES

3.2.2 Improvement of the water demand-price function of urban residents based on QUAIDS

3. 3 Calculation of water price for urban residents based on demand-supply

4 Empirical Analysis

4.1 Overview of Water Resources in Zhengzhou City

4.2 Questionnaire survey

4.3 Empirical and Result Analysis

5 Conclusion and Discussion

Declarations

References

Status:

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