19 MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE Rethinking water rate design in Taiwan Jonathan Osika Despite abundant annual rain, Taiwan faces persistent water shortages driven by temporal and spatial imbalances, infrastructural inefficiencies, and misaligned pricing. This article examines Taiwan’s water pricing, failure to incentivize conservation, and political and economic barriers to reform. Recommendations include customer classifications and raising pricing tiers for large users. Proposed reforms aim to align pricing with environmental and economic goals while maintaining equity across users. Introduction Taiwan, an island renowned for its economic and technological advancements, faces an increasingly urgent challenge: water resource management. Despite receiving an annual average of 259 cm of precipitation (Copper, 2025), the island has struggled with severe droughts in recent years. These droughts have exacerbated inefficiencies in water resource allocation and utilization. This paradox stems not from a lack of water availability but from issues related to temporal and spatial clustering of water resources as well as suboptimal infrastructure and pricing strategies. Taiwan’s dependence on its semiconductor industry, which contributes approximately 15% of the island’s GDP, underscores the critical need for effective water management. Industrial consumption, dominated by chip manufacturers like Taiwan Semiconductor Manufacturing Company (TSMC), places enormous strain on the island’s limited water resources, often at the expense of agricultural and domestic users. The current water pricing system in Taiwan employs an increasing block rate structure designed to incentivize conservation by charging higher rates for greater usage. However, the pricing thresholds fail to sufficiently differentiate industrial and domestic users, resulting in inadequate conservation incentives for large industrial consumers who use disproportionately higher volumes of water. Additionally, Taiwan’s water rates are among the lowest in Asia, further disincentivizing conservation and the adoption of alternative water sources, such as reclaimed water. These pricing inefficiencies are compounded by infrastructure difficulties, including sedimentation in reservoirs, pipe leakage, and the high costs associated with desalination and wastewater recycling. Efforts to address these challenges have led to policy measures like the Reclaimed Water Resources Development Act, which aims to increase the adoption of alternative water technologies, although barriers to implementation remain formidable. Political considerations, public opinion, and the economic significance of industries like semiconductors have made policymakers hesitant to enact reforms that might disrupt the status quo. Taiwan’s transparent democracy, while a hallmark of its governance, also complicates the policymaking process by amplifying opposition voices and slowing decision-making. This article explores the complexities of Taiwan’s water resource management, focusing on the need for reforms in its pricing strategy. By adopting customer classification, raising pricing tiers for large users, and internalizing social and environmental costs into pricing, Taiwan can better align its water policies with sustainability goals. However, overcoming the political and economic barriers to these reforms will require innovative strategies and a delicate balancing of stakeholder interests. Background The island of Taiwan is one of the rainiest places in the world: On average, the island receives 259 cm of precipitation annually. As a result, after losses from evaporation and transpiration, the island has a total of 68.4B cubic meters of water available annually from runoff, soil moisture, and groundwater recharge. Of this available supply, the island’s domestic, industrial, and agricultural sectors currently use only 16.4B cubic meters annually (Water Resources Agency [WRA], 2025), meaning its yearly precipitation available for consumption is enough to satisfy the island’s demand for fresh water four times over. However, Taiwan has experienced recurring severe doi:10.18275/pbe-v043-004
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