First of all water tariffs and charges convey a signal to water users on the value of water. As long as water and waste water treatment do not cost anything or the price is negligibly low or charges are included into general taxes, the notion of water as a public good that must be accessible to everybody in whatever amount one may want to use will persist. But if the water user can see that for example using freshwater for gardening in summer makes the bill go up significantly he will start reconsidering whether a fresh-green lawn is really a must during the hottest summer months. While the freshwater for gardening is not the main problem of developing countries, the principles of consumers’ state are comparable.

This change in consumers’ state of mind is urgently needed, as water is unfortunately scarce, environmentally damaged and is not economically cheap. Explicitly, incentives for water conservation are given by metering, volumetric charges, increasing block-tariffs and a move towards Full Cost Recovery as these instruments lead to a better reflection of marginal costs in water prices. The same is true for pollution charges. The reduction of discharges of polluting substances is rewarded by lower prices. If these charges are increased, pollution damage is reduced and/or those who are harmed by discharges are compensated.

Minimum charges, significant fixed elements, flat fee tariffs and prices below cost recovery on the other hand may prevent water users from getting a signal on the value of water. Also the coverage of water costs through general taxation revenues (as is the case i.e. in Ireland) and charging of irrigation water per surface (as is practised in i.e. the southern countries of the EU) act as disincentives. They water down the conservation message pricing can convey because unnecessary consumption is not reflected in the water bill. Such methods can even promote high consumption. This is like having paid for a huge ‘all you can eat’ buffet and then only eating a slice of dry bread. Hardly anybody would do that but everybody would try to get as much food as possible for his money. For example the calculation of prices for irrigation water in Spain in proportion to the hectares irrigated together with the very low prices paid acts as a disincentive for any improvement in efficiency, such as for example the installation of new irrigation technology which is of course linked to investment. But what is astounding is the fact that big changes in the way farmers produce their crops may not even be necessary to reach a certain gain in efficiency. Considerable amounts of irrigation water are lost due to evaporation because of the time of day chosen for irrigation. There is thus a waste of water occurring just because water users are not aware of the fact that water has a value. This waste would immediately stop after the introduction of a feasible price for irrigation water because only minor changes in management and technology would be necessary to reach a big change for the Environment. Nothing would even have to change for the farmers or for society. Apparently it is thus possible for farmers to react to the introduction of a comprehensive pricing scheme with a reduction in water demand without even changing their crop patterns or production method left alone giving up their business. Just by increasing efficiency and avoiding leakage they can keep their water bills from going up. This valuable opportunity for water saving without farreaching changes in the existing system should not be squandered.

Domestic water consumption can also be directed in the right way by water pricing schemes. For the CEEC countries considerable increases in real prices are reported after dramatic reductions of subsidies and this is proven to have significant effects on domestic per capita water consumption. For example in Hungary consumption has fallen between 1986 and 1997 from 154 lhd to 102 lhd (lhd= litre per head per day) after large real price increases. Available data also shows that domestic water consumption decreases after introduction of metering. However a certain threshold can be determined up to which price increases do not affect consumption levels. The best responsiveness of household water demand is reported for ‘peakpricing’ practises, meaning that there are temporal variations in the price, according for example to general higher consumption in the summer. Unfortunately this possibility is hardly ever used. There are reported cases though, such as in New York where the imposition of a premium summer seasonal tariff was able to reduce the peak day ratio by 14 %. (Roth 2001)