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 analyze 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 an 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, that is, less water use, more growth, and less poverty.