Triple dividends of water consumption charges in South Africa

Abstract

The South African government is exploring ways to address water scarcity problems by introducing a water resource management charge on the quantity of water used in sectors such as irrigated agriculture, mining and forestry. It is expected that a more efficient water allocation, lower use and a positive impact on poverty can be achieved. This paper reports on the validity of these claims by applying a computable general equilibrium model to analyse the triple dividend of water consumption charges in South Africa: reduced water use, more rapid economic growth, and a more equal income distribution. It is shown that the appropriate, budget-neutral combination of water charges, particularly on irrigated agriculture and coal mining, and reduced indirect taxes, particularly on food, would yield triple dividends.