Cost effectiveness analysis of WELS
J.Chong, A. Kazaglis and D. Giurco
Prepared for Department of the Environment and Water Resources by the Institute for Sustainable Futures, University of Technology, Sydney, 2008
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Executive summary
The Water Efficiency Labelling and Standards Scheme (WELS), introduced in July 2006, is a key program in the suite of options recently implemented by government agencies and water utilities to address water scarcity. WELS primarily influences water consumption by providing consumers with information about the water efficiency of all washing machines, dishwashers, toilets, urinals, taps and showers sold in Australia – thus enabling consumers to consider water efficiency as a factor in their purchase decisions.
However, the WELS program is not without costs. Governments, suppliers, retailers and consumers of WELS-products potentially incur costs due to WELS activities and requirements. The Department of the Environment, Heritage, Water and the Arts, in its capacity as the WELS Regulator, commissioned the Institute of Sustainable Futures to analyse the cost-effectiveness of WELS in contributing to the overarching objective of water security, compared to other urban water management options. Consistent with the regulatory impact statement conducted in 2003, this analysis uses a time horizon of 2005-06 to 2020-21.
WELS contributes to water security by reducing water consumption
WELS was introduced at a time of severe and prolonged drought across many Australian regions. During this period of water shortages and restrictions, many factors have combined to influence consumers’ decisions to purchase and use more water-efficient products, and it is inherently difficult to attribute water savings due to WELS or any other individual program.
However, the expanded coverage of water efficiency information provision (compared to the previous voluntary labelling) is likely to have further encouraged consumers and suppliers to target water-efficient products. At least some of the offer and uptake of rebates on water-efficient products can be attributed to WELS. Furthermore, WELS has achieved water savings by enabling Australia-wide implementation of some building regulations and minimum standards targeting water efficiency.
At the commencement of this study, WELS had only been in operation for 18 months and therefore insufficient data was available to conduct a comprehensive ex-post program evaluation. The approach used in estimating and projecting water savings varied according to different data availability for each product type. Where possible, recent end-use survey data and sales data were used to conduct end-use and stock-modelling for each product.
Over the period 2005-06 to 2020-21, WELS is estimated to reduce Australia-wide water consumption by a total of 800 GL (compared to a baseline of no WELS, but voluntary labelling). The most significant conservation potential is from showerheads (290 GL) and washing machines (280 GL), followed by toilets and urinals (185 GL). As a proportion of the overall water savings, the direct contribution to water savings due to WELS on taps and dishwashers is expected to be much smaller, constituting approximately 6% of total savings. However, wide coverage of product types could underpin the effectiveness of WELS information in driving consumer decisions about all product types.
The relative contributions to water savings by different product types is partly due to different proportions of total water used by those products, but also reflects different expected rates of innovation, future potential for improvements in technical water efficiency, and the efficiency of products in the current stock.
WELS imposes costs to administrators and suppliers
The WELS administrators and suppliers of WELS-related products are likely to bear the largest share of direct WELS costs. Over the period 2005-06 to 2020-21, total administration costs to the Department of Environment, Water Heritage and the Arts are projected to be about $16 million (PV 2007 dollars, 7% discount rate), including costs of staffing and various activities including promotion, enforcement, and database management. Part of these will be offset by revenue from registration fees. Total supplier costs are estimated at around $16 million (PV 2007 dollars, 7% discount rate) comprising mainly labelling costs (around $7 million) and registration fees ($5 million).
These cost estimates are based on a number of assumptions about future activities, which are uncertain. Using upper estimates of future registration fees, supplier staff involvement in registration processes, testing and labelling costs, suppliers costs are estimated at around $36 million.
Another key area of uncertainty is current and future price premiums due to WELS. However, there is a range of evidence to suggest that price premiums are not likely to be as substantial or as long-lived as those originally estimated in the WELS Regulatory Impact Statement. Most suppliers indicated that products at each star rating are available at a range of prices, that prices adjust quickly downward in response to increased demand, and that as supplier markets have expanded, price premiums are generally lower. As more price information becomes available, further analysis will clarify the extent and duration of any price premiums due to WELS.
In addition to water savings, WELS has a number of other sustainability and financial benefits
As a group, consumers who purchase water-efficient WELS products stand to significantly benefit from the financial value of water saved (PV $400 million at 7% discount rate, with no increase in real water prices). However, these water savings also lead to other significant sustainability benefits, in terms of the avoided energy used to heat water – and hence avoided greenhouse gas emissions. Over the period 2005-06 to 2020-21, WELS is projected to result in a total of over 9 million MWh of energy savings and about 6 million tonnes of avoided greenhouse gas emissions, due to avoided water heating.
Avoided water and wastewater pumping and treatment will also lead to avoided energy consumption (over 0.6 million MWH) and avoided greenhouse gas emissions (about 0.6 million tonnes).
WELS cost-effectively contributes to water security, compared to most other urban water management options
The levelised unit cost of WELS (taking into account net costs, but excluding transfer costs/benefits between stakeholders) is estimated at $0.08/kL (7% discount rate). At a lower discount rate of 1.6% and using the upper limiting estimates of supplier costs (10%), the levelised cost is estimated at $0.21/kL.
WELS therefore compares favourably to other water urban water management options which have been recently implemented, or are proposed for implementation, in various Australian states and territories. Supply options in particular appear to be less cost-effective than WELS, ranging from $1.19 - $2.55/kL for desalination, to $3.58/KL for some surface supply options and $5.50/kL for more expensive recycling options.
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