Cities need new finance options and better governance to tackle future water risks


13/04/2015 - Rapid population growth, ageing infrastructure and new weather risks are straining the ability of cities in OECD countries to provide clean water and to protect against floods and droughts, according to a new OECD report. Cities will need large-scale investment and more effective tariffs and taxes to pay for upgrades to water systems.


Water and Cities: Ensuring Sustainable Futures finds that city water systems in OECD countries will increasingly struggle with deteriorating plants and pipelines, pollution, and changing weather patterns. It also recognises that rapid urbanisation, with 86% of the OECD population set to be living in cities by 2050, means that urban users, farmers and energy firms will increasingly be draining the same water basins.


The report finds that the need to fit new hardware into decades-old infrastructure so that it can cope with future demands could greatly inflate running expenses and capital spending.


“OECD Cities are entering a new era of uncertainty in terms of water services and security,” said OECD Secretary-General Angel Gurría, launching the report at the 7th World Water Forum in Korea. “We need new ways of financing and managing water. Planning ahead will mean a much lower bill than if we carry on as we are today.” (Read the full speech)


Today’s financing mechanisms cannot cover the cost of upgrading old water systems, due to public budget cuts, a failure to reflect future costs in water charges and a drop in tariff revenues as city dwellers in OECD countries use less water . The report recommends redesigning tariffs and taxes to discourage wasteful or costly practices and seeking new sources of funding from users who generate the biggest costs.


Cities could also improve their management of existing assets. Better water management and coordination between cities and surrounding areas is also vital.


Water and Cities: Ensuring Sustainable Futures gives examples of innovation in water management, based on city case studies and surveys of urban water governance and regulation. For example, Paris and San Francisco use non-potable water for street-cleaning and toilet-flushing, respectively, saving money by not treating all water to drinking standard.


The report recommends that cities:


  • Improve the way they use taxes and tariffs. Taxes should be designed so those who benefit most from water systems or generate extra costs foot more of the bill. Tariffs should better reflect water scarcity and the cost of upgrading infrastructure. For example, new taxes could be aimed at property developers, who need first-rate water services.
  • Harness more private investment from financiers, property developers and entrepreneurs to finance new infrastructure or facilities like desalination or wastewater plants. Capital tied up in water infrastructures could be used to generate liquidity for new projects.
  • Drive innovation in water management by changing regulations that favour old technologies, having tariffs and taxes reflect the true cost of inefficient practices, and introducing performance-based contracts that reward objectives like conserving water.
  • Encourage co-operation between cities and their surroundings, e.g. using farmland as a buffer against floods or sending city run-off to be used for rural irrigation. Set up institutions that can manage water at different scales through urban-rural partnerships or through co-operation between neighbouring towns and cities.
  • Where they exist, empower water regulators to protect the public interest and increase transparency in urban water supply and sanitation to make service providers more accountable, and to introduce more independence and technical underpinning in the setting of tariffs.


For further information, or to arrange an interview with an OECD expert, contact Catherine Bremer in the OECD Media Office (+33 1 4524 9700).


An embeddable version of the report is available at:

Read more about the OECD’s work on water:


Other publications being launched at the 7th World Water Forum:


Water: Fit to Finance?

Securing Water, Sustaining Growth 

Water Resources Allocation: Sharing Risks and Opportunities

Stakeholder Engagement for Water Management

The Governance of Water Regulators

Read the special edition of the OECD Observer on water


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