21 MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE While much simpler than a variable rate structure, a fixed rate creates little incentive to conserve resources among the highest use industries. For this reason, many water utilities around the world use increasing block structures as opposed to the simpler fixed rate structure. However, many people criticize the quantification of blocks in Taiwan’s pricing scheme as it does not adequately incentivize conservation. Using an increasing block structure to inform consumers about water scarcity and encourage conservation is known as price signaling. The structure of pricing in Taiwan demonstrates that customers are charged NT$12.075 per additional cubic meter of water used above 50 cubic meters per month. This threshold faces criticism due to the large number of high-use entities that fall within this category. The average Taipei resident uses about 7.5 cubic meters of water per month (Chen, 2020), while TSMC uses approximately 22.8M cubic meters per month across their 80 chipmaking plants (Crook, 2023, April 20). A large household in Taiwan that consumes around 60 cubic meters of per month would be charged at the same high pricing block as TSMC, which uses 380,000 times more water. Furthermore, of all users under the Taiwan Water Corporation, 92% use less than 50 cubic meters per month, with the remaining 8% falling into the highest pricing block (Water prices might…, 2024). Figure 1 demonstrates the tremendous gap between the vast majority of users, below 50 cubic meters per month, and high-use entities like TSMC. Since the purpose of an increasing block structure is to incentivize conservation, many argue there should be higher prices faced by larger users (Chou & Haggerty, 2021; Fitch Ratings, 2021), because they are most capable of making meaningful conservation efforts through the adoption of reclaimed water technologies (Kaye, 2011). In response to this criticism, the Taiwanese government imposed an additional seasonal tariff of NT$1.5 per cubic meter of water used during the November–April dry season. This tariff only applies to entities using more than 9000 cubic meters per month, not counting recycled water, seawater, or rainwater collected on site (see Fig. 1). The tariff is scheduled to increase to NT$3 in mid-2025, but users can face a reduced tariff of NT$1 and receive tax breaks if their recycled water and seawater use reaches certain milestones. Tariff revenue will be used by the WRA to further develop renewable water resources and promote conservation. Ultimately, the MOEA considers this a “win-win policy” intended to incentivize conservation from large users during the water-scarce months of November–April (MOEA, 2023, as cited in Crook, 2023, April 20). Many argue this is a step in the right direction, but more stringent conditions should have been specified. WRA Union Director Jennifer Nien went on record stating that the threshold for the tariff should be no greater than 1000 cubic meters and the tariff should be at least NT$3 per cubic meter (Environmental Information Center, as cited in Crook, 2023, February 8). The tariff was initially set at this 1000–cubic meter threshold during early policy design discussions, but there was concern the impact would hinder industries like hospitality, which has faced much less scrutiny than large industrial entities. This points to the question of how the pricing scheme should be structured (Crook, 2023, April 20). Optimizing Taiwan’s water pricing strategy Economists and policymakers around the world have long debated the principles of efficient, equitable, and sufficient rates set by public water utilities. The American Water Works Association (AWWA) has outlined the most recent and agreed-upon objectives for setting rates. The AWWA is an international nonprofit organization and claims to be the largest organization of water professionals around the world. The objectives outlined in its “Principles of Water Table 1 Taiwan’s water rate structure *Formula: water consumption fee = water use × progressive rate – progressive difference. Source: Water Resources Agency, 2023. Consumer water use (cubic meters/month) Progressive rate (NT$/cubic meter) Progressive difference (NT$) Water consumption fee (NT$)* 1–10 7.35 0 7.35–73.50 11–30 9.45 21.00 82.95–262.50 31–50 11.55 84.00 274.05–493.50 >50 12.075 110.25 >493.50 Consumer water use (cubic meters/month) Progressive rate (NT$/cubic meter) Progressive difference (NT$) Water consumption fee (NT$)* 1–10 7.35 0 7.35–73.50 11–30 9.45 21.00 82.95–262.50 31–50 11.55 84.00 274.05–493.50 >50 12.075 110.25 >493.50 Consumer water use (cubic meters/month) Progressive rate fee (NT$)*
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