You are on page 1of 32

Push, pull, nudge

Water today, water tomorrow

How can we help customers save water, energy and money?

www.ofwat.gov.uk
Push, pull, nudge – how can we help customers save water, energy and money?

It seems almost unthinkable


that we should need to conserve
water

This is one of a series of


occasional focus reports Contents
about work we are doing on
a particular policy area. It
highlights the role that various 1. Water, water everywhere? 3
measures could play in the
water and sewerage sectors 2. Why use less water? 6
in England and Wales to help
customers save water, energy 3. Push – requiring change 10
and money. Our aim is to
encourage wider debate and 4. Pull – rewarding economy 13
discussion.
5. Nudge – encouraging behaviour change 19

6. Conclusions and next steps 28

7. Further information 30

2 Contents
Water today, water tomorrow

1. Water, water everywhere?


Talking about the weather has long expect more flooding as well. At the environment need it most. In some
been a national pastime. We same time, population growth and cases, that could be the best
comment on how warm it is, or how lifestyle changes are likely to push solution. But saving water brings
cold it is. We talk about the wind up water demand in some parts of wider benefits. Not only can it help
and the fog. But mostly we like to the country where the water to protect the water environment, it
complain when it rains. In our environment is already under can also help customers to reduce
temperate climate, rainfall occurs pressure. their water bills. And, when they use
throughout the year. So it seems less hot water, it can help to cut
almost unthinkable that we should Against this background, it seems their energy bills and carbon
need to conserve water. obvious that we will need to capture emissions too. So, we need to think
more rainfall in times of surplus, harder about how we use this
Yet from time to time droughts storing it for when we and the precious resource.
remind us that our water supplies
are limited. For example, in 2006
south-east England had one of its
worst droughts for nearly 100 years, Ensuring reliable water supplies
directly affecting 15 million people.
The water companies took Most people in England and Wales receive their water from one of 22
additional action to reduce leakage private monopoly water companies. Only two of the companies plan to
and make the best use of available supply water for all uses, even during the worst droughts. Customers
sources of water. But they also had of the remaining companies do not want to pay for unlimited supplies
to introduce restrictions on with much higher bills. Instead, the companies must ensure essential
customers’ use. United Utilities took supplies and manage the risk of having to restrict other uses during
similar action in 2010 after the droughts. For example, Thames Water plans on the basis that its
north-west of England experienced customers should not experience a hosepipe ban more than once in
the driest start to the year since every 20 years.
1929.
As the economic regulator of the water and sewerage sectors in
Climate change projections England and Wales, we expect each company to maintain reliable
consistently show that there will be supplies in a way that delivers best value to its customers and the
more of these extreme weather environment.
events in future. In fact, not only will
there be more droughts, we can

Water, water everywhere? 3


Push, pull, nudge – how can we help customers save water, energy and money?

In 2006, south-east England had Minimising waste


one of the worst droughts in the In ‘Waste not, want not – making
region for nearly 100 years the best use of our water’, which
we published in June 2010, we
described how the companies and
consumers could help to address
these challenges by minimising
wasted water.

For their part, the companies need


to control leakage effectively. They
also need to explore opportunities
to transfer water from areas where
there is a surplus to areas where
there is not enough – sometimes
across water company boundaries.

This document focuses on the


contribution that household
consumers can make, and the
steps that Government, regulators
and the companies can take to
help them.

For many of us, the way we use


water is deeply ingrained. We do

4 Water, water everywhere?


Water today, water tomorrow

Push, pull and nudge


not tend to make conscious
decisions about how much we use. There are different ways to encourage consumers to use water more
And we are unlikely to change our wisely. We have grouped them into three categories.
habits without being prompted.
There are different ways of Push is about setting standards for water-using devices. This
prompting such change, and each includes the regulations that apply to water fittings and new homes.
has its own merits. We have set out The Department for Environment, Food and Rural Affairs (Defra), and
the options (right). the Department for Communities and Local Government (CLG) are
responsible for these regulations, but the European Commission has
In this document, we: an important influence too.

• discuss why using water wisely Pull is about rewarding customers for using water wisely. The most
is important; obvious way to do that is to charge customers for what they use, so
• describe in more detail the that they pay less if they use less. About 60% of household customers
different ways of achieving in England and Wales do not have a water meter, which means that
sustainable water use; and they do not pay according to how much they use. Defra and the
• seek feedback on the work we Welsh Assembly Government set the policy and legislative framework
can do to encourage and bring for metering. For those customers who have a meter, the level and
about change. structure of their charges can have an important influence. The
companies are responsible for setting charges, subject to our
We hope that this will contribute to approval.
the debate about how we value
water, how we pay for it, and how Nudge is about understanding consumer behaviour and using it to
we can use it more sustainably. promote change. It draws on best practice in advertising and
marketing to encourage consumers to change their water-using habits.
It is something that Government, the regulators and those providing
services to consumers can all use.

Water, water everywhere? 5


Push, pull, nudge – how can we help customers save water, energy and money?

2. Why use less water? Pressures on the


In some parts of England and it is available to satisfy consumer water environment
Wales, there are already pressures demand and replenish water
Of the 22 water supply areas
on the water environment (see habitats in times of need.
in England and Wales, the
opposite). Climate change could
Environment Agency classifies
further limit water availability. At the The companies should look at the
12 as ‘seriously water
same time, a growing population potential to share resources. This
stressed’. It makes this
and changing lifestyles are likely to could require more connections
assessment by comparing
push up household water demand, between water company networks.
current and forecast rainfall
although changes in the commercial Adopting such an approach would
per person with current and
sector could see a reduction in non- help the companies to maintain
forecast household water
household demand. supplies even when extreme events
demand per person.
like floods take some sources out of
Against this background, the service. We discuss this subject in
The water stress classification
companies have to take steps to more detail in ‘Resilient supplies –
is a very high-level measure to
maintain a balance between water how do we ensure secure water
inform proposals for metering
supply and demand. and sewerage services?’, which we
(see chapter 4). The
published in November 2010.
Environment Agency’s
An appropriate assessment of water resource
Developing new sources of water,
response? and joining up the companies’
availability measures the
pressures on water habitats
The overall impact of these networks to make better use of
more specifically. Using
changes will vary between regions existing sources, can provide clear
information from its Catchment
and so will the most appropriate benefits. But these options can also
Abstraction Management
responses. involve very high infrastructure and
Strategies (CAMS), it indicates
energy costs, which would push up
areas of risk to the water
All of the companies must make bills. So, in many regions there will
environment.
sure that they control leakage be a case for reducing the demand
effectively. In some cases, they for water. It makes sense to find
The Environment Agency
might need to target further cost-effective ways to reduce
assesses whether water is
reductions in leakage. In others, it wasteful water use in all regions,
available for abstraction by
might be appropriate for them to but the need to cut waste is even
comparing the amount of water
develop new sources of water, more pressing in those regions
storing it in times of surplus so that where water is already scarce.

6 Why use less water?


Water today, water tomorrow

that the local ecology needs (the Water stress classification Serious
‘Ecological Flow Indicator’ or EFI) Moderate
1. Anglian Water
with fully licensed and recent 2. Sembcorp Bournemouth Water Low
actual flows. The fully licensed 3. Bristol Water 8 Not assessed
flow assumes that all existing 4. Cambridge Water 22
5. Essex & Suffolk Water
abstractors take their full
19
6. Veolia Water Southeast
permitted amounts. The recent 7. Mid Kent Water 21

actual flow is based on the 8. Northumbrian Water


9. Portsmouth Water
amounts that existing abstractors 10. Severn Trent Water
currently use. 11. South East Water
12. South Staffs Water 10 12
13. South West Water 1
The Environment Agency uses
5
14. Southern Water 4

six different CAMS resource 15. Sutton & East Surrey Water 16
16. Veolia Water East
availability colours to show
17 18 5 14
17. Thames Water 17

whether water resources might


3 14
18. Veolia Water Central 14
11 17 15 7 6
19. United Utilities
be available for further
20 9 14 11
2 14
13
20. Wessex Water
abstraction. The grey and green
14
21. Yorkshire Water
colours indicate where 22. Hartlepool Water
abstraction is at a sustainable
level, so more water may be
CAMS resource availability colours at low flows
available. Yellow and orange
indicate that abstraction is Fully licensed flows would be >10%
above normal
potentially unsustainable but
water might be available when Fully licensed would be flows >
flows are high. Red and purple environmental flow indicators
indicate where abstraction is Fully licensed flows would be just
unsustainable and there may be > environmental flow indicators
little opportunity to abstract more
Fully licensed flows would be <<
water. The Environment Agency environmental flow indicators
takes other factors into account
Recent actual flows are <
when it makes detailed decisions
environmental flow indicators
about water availability, so this
map is not a definitive summary. Recent actual flows are <
environmental flow indicators – 25%
© Crown copyright. All rights reserved.
Environment Agency 100026380. 2011

Why use less water? 7


Push, pull, nudge – how can we help customers save water, energy and money?

Benefits of saving average, 25% of the energy that costs. Using this definition, we can
people use in their homes is to heat start to see some of the reasons
water water. why we might waste water even
It is in all our interests to use water though it is in all our interests to
wisely. What scope is there to use it wisely.
save water? The most obvious is that the price
Saving water benefits our pockets.
A family of three could save £43 a We can achieve these benefits we pay for water does not reflect the
year on its metered water and without giving up the water that we full cost of supply. So we are unable
energy bills if each person spent value for our health and enjoyment. to compare costs and benefits
just one minute fewer in the shower We just need to waste less. properly when we decide how much
each day. Even if the same water to use. Unmetered customers
household did not have a water In England and Wales, on average pay a fixed fee, but then pay nothing
meter, it could still save £24 a year each person currently uses about at all for each unit of water they use.
on fuel alone. And if saving water 150 litres of water a day. That is Even metered customers pay less
means that the companies avoid more than in Germany, Austria and than the full cost of supply. Metered
investing in expensive new assets, the Netherlands. Nor do we have to charges reflect only water company
then that should help to keep look overseas for examples of lower costs, which cover some but not all
metered and unmetered charges water use. Veolia Water East’s of the environmental costs of
down in the long run. customers in the east of England supplying water, and removing and
use fewer than 120 litres per person treating wastewater.
Saving water also benefits the each day on average. Yet these
environment. By reducing pressure comparisons only tell us something In other sectors, consumers often
on the water environment, it helps about the potential to use less. They take account of environmental and
to protect animal and plant life, and do not tell us whether it is desirable social impacts when they decide
make local supplies sustainable. It to do so. what to buy, whether or not the
benefits the wider environment as prices they pay reflect those
well – saving water saves energy People waste water when the impacts. For example,
and reduces carbon emissions. The benefit they get from using it is less environmentally-conscious
companies use energy when they than the cost of supply, including consumers limit their air travel even
treat and distribute water. Also, on wider social and environmental though prices are often very low.

8 Why use less water?


Water today, water tomorrow

We do not have to give up


the water that we value. We just
need to waste less

But Defra’s report on ‘Public


understanding of sustainable water
use in the home’, published in
March 2010, found that consumers
are not very aware of water scarcity
or the environmental impact of
using water. Hosepipe bans and
other restrictions sometimes raise
awareness, but in general the effect
is temporary.

We shall see in the following


chapters that these are not the only
reasons why people waste water.
We consider how the companies
and other parties can overcome
these issues to encourage
consumers to use water more
wisely. Our focus is on the three
broad categories of measures
outlined on page 5 – push, pull and
nudge. We highlight the key issues
with each approach.

Why use less water? 9


Push, pull, nudge – how can we help customers save water, energy and money?

3. Push – requiring change


There is an argument for simply requiring water-using products to be more efficient. As long as efficient versions
deliver the same experience, we will have no reason to change our behaviour – but we will use less water.

The impact of • The Code for Sustainable Homes required property developers to
and Building Regulations require achieve even higher water
regulations all new properties to meet efficiency standards – consistent
There are two main sets of minimum standards for typical with levels 1 and 2 of the Code for
regulations that influence water use. water use. Sustainable Homes. This means
that new properties should achieve
• The Water Supply (Water Fittings) The water fittings regulations and average water use of no more than
Regulations 1999 (‘water fittings the water by-laws that preceded 120 litres per person each day,
regulations’) set minimum them have had a significant impact excluding garden use. The Code
standards for the water efficiency on our water use. And, since April also requires new homes built with
of toilets. 2010, Building Regulations have public funds to achieve level 3,

Flushed with success


In the 1940s, toilet cistern volumes were typically about 12 litres.

The Government started to impose limits in the 1960s. By the early


1990s, new toilets had a maximum flush of 7.5 litres.

The water fittings regulations now specify a maximum flush of 6 litres.


Waterwise, a leading authority on water efficiency in the UK, estimates
that each of us flushes the toilet about six times a day. So reducing the
maximum flush from 7.5 to 6 litres a day could generate water savings
of about 9 litres per person each day.

This is a significant amount when set against the daily average of 150
litres per person.

10 Push – requiring change


Water today, water tomorrow

New properties should achieve


which sets a standard of 105 litres or amended
average water use of no more
per person each day. water fittings than 120 litres per person
regulations each day
Do we need more would be
regulations? constrained by
developers in their regions to build
rules regarding barriers to trade with
CLG, which is responsible for the other European countries. more water-efficient properties.
Code, reports that it could cost
developers £200 more to achieve More generally, the UK and Welsh Or, property developers could offer
level 3 than it costs them to achieve Assembly Governments prefer a homebuyers more choice. If they
level 1. But it also notes that some more deregulatory approach to can choose the pattern on their
developers, especially volume encouraging change. For example, bathroom tiles, buyers should also
homebuilders, think that there energy efficiency labels for washing be able to select the type of shower
would be no additional cost. machines and dishwashers have to their new home will have.
show how much water the product
The UK Government does not uses. This should help to raise Measures to improve water
currently wish to set higher consumer awareness and stimulate efficiency in existing homes could
standards for water efficiency in manufacturers to innovate to generate even greater benefits. In
new build homes. It is conscious of improve water efficiency. The UK 2009-10, about 124,000 new
the need to minimise the regulatory and Welsh Assembly Governments properties were completed in
burden on homebuilders. Even so, it have also encouraged England, while the total housing
is committed to tightening the manufacturers to provide water stock exceeded 22.6 million
regulations for energy efficiency to efficiency labels voluntarily for a properties.
achieve a zero carbon standard for broader range of products that use
new homes by 2016. Bearing in water (see chapter 5). The scope to improve water
mind that water use – and efficiency is particularly high in social
particularly hot water use – has a Other options housing, where products that use
significant carbon cost, we think water tend to be less efficient. A
that it is worth keeping standards Regulations are not the only way of recent survey for the Greater London
for water efficiency under review. achieving more sustainable water Authority suggested that about 80%
use without relying on behaviour of social housing properties in
Scope to extend the water fittings change. One option would be for Greater London had a bath and no
regulations is also limited. Any new the companies to incentivise shower. A typical bath will use three

Push – requiring change 11


Push, pull, nudge – how can we help customers save water, energy and money?

or four times as much water as and 931,000 replacement kitchens 2008, the proportion had increased
spending five minutes in the shower. in social housing since 2001. This to 32%.
has brought clear benefits. For
Against this background, the decent example, in 2001 only 7% of toilets A role for push?
homes programme has fitted in local authority housing had a
692,000 replacement bathrooms maximum flush of six litres. By There is undoubtedly a place for
measures that conserve water
without changing behaviour. Such
measures are already having an
Mandating change across Europe impact. There is scope for them to
achieve more, but they should seek
Two main developments at the European Commission could influence to do so without reducing the
water use in England and Wales in the future. benefits we enjoy from using water.

A Water Efficiency of Buildings Directive is likely to


follow from the Commission’s review of water policy
in its ‘Blueprint for Water’, due
in 2012. Defra will seek to influence any standards
that form part of the Directive.

The Ecodesign Directive, which is already in place, is


likely to expand in 2012 to encompass hot water-
related products such as taps and shower heads. The
Directive aims to make sure that different national
legislation on the environmental performance of
energy-related products does not present an obstacle
to trade within the European Union. Again, more
information on this should emerge in the second half
of 2011.

12 Push – requiring change


Water today, water tomorrow

4. Pull – rewarding economy


More than half of all household The independent review of charging
customers in England and Wales for household water and sewerage
do not have a water meter. Their services, carried out by Anna Walker Rateable values
water and sewerage bills depend (the ‘Walker review’) concluded that
on the rateable value of their future charging for water should Rateable values formed the
property. So an unmetered generally be based on a metered basis of local taxation before
household cannot reduce its bill by system. There is broad support for the Government introduced the
using less water. It could stop using this view across stakeholder groups. Community Charge in 1990.
water altogether and its bill would The question, then, is not whether to Local Authorities assessed the
be unchanged. meter household customers, but annual rental value of individual
how quickly to do so and what type properties and taxed
Metered charges provide a clear of meter to install? households accordingly. They
financial incentive for customers to made their last comprehensive
use less water. When metered assessment of rateable values
customers use less, they pay less. Household metering – in 1973, and only issued new
valuations up until March 1990.
Evidence from UKWIR, the research
body for the water and sewerage
how fast? These values date from before
sectors, shows that customers The UK and Welsh Assembly many of today’s water
respond to this incentive, and Governments’ view is that it is for customers were even born.
reduce their water use by between government to set the policy and This seems increasingly
10% and 15%. Research also legislative framework for metering, anachronistic, and arguably
suggests that customers regard and for Ofwat to assume proactive unfair.
metered charges as the fairest way leadership in implementing this
to pay for water, particularly if policy.
everyone has a meter.
The UK Government will set out its
Yet despite these clear benefits, only policy on water metering in a Water
37% of households had a water White Paper, which it plans to charges have a role to play in
meter in 2009-10. We expect this publish in the summer. In Wales, encouraging careful use of water,
figure to increase to about 50% by the Assembly Government has set but it is concerned about the
2015 as more customers opt for a out its policy in an updated potential negative impact on some
meter and some water companies ‘Strategic policy position statement vulnerable groups. It will update its
meter their customers compulsorily. on water’. It considers that metered position in due course.

Pull – rewarding economy 13


Push, pull, nudge – how can we help customers save water, energy and money?

Our initial findings support the


Walker review’s conclusion that an
Under the current legal framework customers
in England and Wales, the and the accelerated metering programme
proportion of household customers environment. could be significantly beneficial
with a water meter increases slowly
each year. At the current rate of As a first
progress, we will achieve near- step, we have started to assess the found that an accelerated metering
universal metering by 2050. A key impact of metering over different programme could be “significantly
issue is whether this gradual timescales. The Walker review beneficial for customers and the
transition is in the best interests of carried out a similar analysis. It environment” under certain
conditions, including where it is
expensive to supply water. Our
initial findings support the review’s
When can the water companies conclusion.
meter their customers?
We looked at the costs and
The existing legal framework allows each water benefits of metering over
company to charge individual customers different time periods. For the
according to the volume of water they use: purposes of this work, we did
not consider how the companies
• when the property is new; might achieve faster rates of
• on change of occupier; metering. The box (left) shows that
• when a customer opts to have a meter; and it is possible to increase the rate of
• under specific circumstances where the customer has high metering in some cases under the
discretionary use, for example if they have a swimming pool. current legal framework. It is for the
UK and Welsh Assembly
Also, the companies can charge all household customers by volume if Governments to decide whether it
the Secretary of State (or Welsh Ministers for companies operating is appropriate to retain or revise
wholly or mainly in Wales): that framework.

• grants a company ‘water scarce area’ status; or Metering – what type of


• designates all or part of a company’s region as ‘seriously water
stressed’, and the company has a programme of compulsory
meter?
metering in its published water resources management plan. Our metering analysis assumes that
the companies will install standard

14 Pull – rewarding economy


Water today, water tomorrow

Why is there a steady flow of meter optants?


meters, like most of those already in
place. These meters have no facility Customers usually opt for a meter because their bills would be lower
to store information, and the if they paid for how much water they use.
companies have to read them
manually. When customers opt for this reason, charges increase for the
remaining customers who do not have meters. This happens because
From a customer perspective, we make sure that each company’s charges for unmetered customers
having a standard meter helps to as a whole reflect the amount of water that those customers use.
raise awareness of water use Customers who opt for metered charges tend to use less water – even
because it enables charging by before they opt – than do customers who remain unmetered. So,
volume. But the meter itself average unmetered water use normally increases when customers
provides little prompt for customers opt, and unmetered charges increase correspondingly.
to alter their behaviour. In most
cases, it is installed in the ground That might seem unfair to the remaining unmetered customers, whose
beyond the property boundary and water use might not have changed at all. But it reflects the fact that, on
is often difficult to read. More average, those customers paid too little in the past. These increases in
sophisticated, ‘smart’ meters can unmetered charges prompt more customers to opt, and the cycle
help to engage customers more continues.
effectively. They can collect more
detailed information about how We recognise that some customers do not opt for a meter even when
much water customers use. The it might benefit them. So, some unmetered customers are paying bills
companies can communicate this that are high relative to their own water use. We are considering what
information to customers through the companies can do to help customers understand their options.
different media. For example, they This will be particularly important for customers from vulnerable
can relay information: groups, including those on low incomes.

• using a display in the home;


• as part of a customer’s online
account information; or
• with printed bills. customers, the advantages could their meter gives them. While some
be even greater. About 90% of commercial customers already have
Household customers could clearly commercial customers already have more sophisticated meters, most
benefit from this enhanced a meter. For them, the key issue is do not.
information. For non-household the quality of the information that

Pull – rewarding economy 15


Push, pull, nudge – how can we help customers save water, energy and money?

Smart meters are easier for the


Higher Fully ‘smart’ meters offer all Increased
companies to read. Some allow
capital costs the benefits of ‘dumb’ and AMR benefits
walk-by or drive-by readings from a
meters, plus in-house displays radio signal. Others can send and
(IHDs), real-time water usage receive information through a fixed
data, potential for integration communications network. As well as
with smart energy meters and reducing operating costs, this can
faster detection of leaks inside help the companies to introduce
the home. different types of charges (see
‘Improving price signals’ opposite).
Automatic Meter Readers
(AMR) have all of the benefits The benefits of smart meters are
of ‘dumb meters’ but also offer easy to describe, but harder to
reduced meter reading costs, quantify. To date, there have been
helping to eliminate estimated no large-scale trials of smart water
bills. Coupled with data meters in England and Wales.
loggers, they can record International experience is also
readings taken at different limited. So there is currently a lack
times, potentially helping of evidence to support either the
customers to understand their estimated costs or likely benefits of
water use on a more regular smart metering. As the Walker
basis than ‘dumb’ metering review recommended, we have
allows. formed an industry and Government
stakeholder group to help
understand the challenges and
‘Dumb’ (existing) water
opportunities that smart meters
meters provide the means for
present.
fairer charging (paying for
water used), help customers
In 2010, this group helped to
manage their water use
prepare water sector
(including hot water), and help
Lower Some representations on the
identify leaks.
capital costs benefits Government’s draft proposals for

16 Pull – rewarding economy


Water today, water tomorrow

Smart energy metering


smart energy metering. The main
objective of these representations Between now and 2020, the energy sector will roll out smart meters to
was to keep open the option for all households in England and Wales. This could provide an
water to share the energy sector’s opportunity for the water companies to use the communications
new communications infrastructure. infrastructure that will support these new smart meters. In particular,
they could:
Improving price signals
• reduce their data collection costs by transmitting meter readings
Pull is about improving price signals through the energy communications infrastructure; and
to reward economical water use. • present water usage information to consumers using the same
The transition from unmetered in-home displays that the energy sector will use.
charges to charging by volume is
the most obvious example of this. When they install smart meters, energy suppliers will provide
But there are others. households with information about energy efficiency. We think that this
presents an excellent opportunity to deliver water efficiency
For example, metered charges information at the same time. Providing advice jointly would reduce
could differ in ‘peak’ and ‘off-peak’ costs and reinforce the efficiency message. Water and energy
periods if the costs of supply efficiency are closely linked – consumers save both water and energy
depend upon peak period demand. when they use less hot water.
On the same basis, temporary
higher pricing could encourage
water conservation during drought
periods. This could reduce the need
to impose hosepipe bans and other prohibitively expensive for a water Abstraction charges should help
restrictions on use, although it company to read all its customers’ to signal the different values of
would need to come with meters manually at the same time. water in different locations,
safeguards to protect customers. Automated meter reading makes encouraging abstractors to use
this task easier and cheaper. water resources more sustainably.
Seasonal charges are difficult to We continue to work with Defra and
apply with standard meters because It is not only price signals to water the Environment Agency to explore
they require meter readings at and sewerage customers that possible abstraction licensing
particular points in time. It would be matter for sustainable water use. reforms.

Pull – rewarding economy 17


Push, pull, nudge – how can we help customers save water, energy and money?

Southern Water’s universal metering


programme
Southern Water is in the process of managing an accelerated
transition to widespread metering. The Secretary of State has
designated its operating area as seriously water stressed, and the
company needs to take steps to maintain an appropriate balance
between water supply and demand. As part of its published water
resource management plan, Southern Water is launching a
comprehensive programme to meter nearly all of its household
customers.

At present, 40% of the company’s household customers already have


a water meter. Between now and 2015, it will install nearly 500,000
new meters to take this proportion to about 92%.

As part of its installation programme, Southern Water has worked with


various experts to make sure it engages effectively with its household
customers on the key issues of saving water, energy and money.

The company is introducing transitional charging arrangements to


ease the impact on those customers whose bills will increase. It will
also offer free water and energy audits and water-efficient devices to
low-income customers who will face significantly higher bills. And it
plans to introduce further measures to protect customers on low
incomes in light of forthcoming guidance on social tariffs from the
Secretary of State.

The company’s experience will help provide valuable information on


the costs and benefits of metering. It will help other companies to
identify the steps they need to take to deliver large-scale metering
programmes successfully.

18 Pull – rewarding economy


Water today, water tomorrow

5. Nudge – encouraging behaviour change


Metered charges provide an simplification. Relatively recently, influence behaviour by design than
incentive for customers to use they have drawn on insights from to influence it by accident.
water wisely. But we cannot rely psychology and other social
on metering and charging alone to sciences to gain a better The case for nudging
achieve sustainable water use. understanding of consumer
water use
There will continue to be significant behaviour. This ‘behavioural
numbers of unmetered customers economics’ reveals that the way Thaler and Sunstein’s 2008 book,
for some time. And even when options are presented can have a ‘Nudge – improving decisions about
customers have meters, the price significant impact on the choices health, wealth and happiness’,
they pay per unit of water is unlikely people make. Advertising and helped to bring behavioural
to reflect the full social, economic marketing executives have known economics to popular attention. It
and environmental cost of supplying this for a long time, but behavioural describes a range of circumstances
and taking away that water. In any economics has revealed more under which people are most likely
case, we know that people do not about why it happens and hence to make mistakes in their decisions,
always respond to price signals in how policy makers and others can and hence where they could benefit
the way that economics text books influence – or ‘nudge’ – behaviour. most from a nudge. The
suppose. table on page 20
At first glance, nudging water use, summarises
The traditional text book approach or any other behaviour, sounds both these
assumes that consumers spend manipulative and controlling. But it circumstances
and save optimally. They maximise is not about restricting or interfering and notes
the value they get from a vast range with consumers’ freedom to choose. which ones
of consumption and investment They can always give nudges the might apply to
opportunities, drawing on a wealth cold shoulder. water. It looks
of information to perform separately at
complicated trade-offs. So the Nor is nudge necessarily decisions about
amount that they choose to spend manipulative. It simply recognises daily water use and
on a home, a car, or their children’s that consumers will be affected by purchases of products
education, is precisely calibrated the way in which options are that use water (such as washing
with the amount they spend on presented to them. They will be machines and dishwashers).
shoes, tins of beans and tap water. affected regardless of whether the
presentation is deliberately The overall conclusion is that water
In practice, economists recognise designed to have such an influence. use is a suitable candidate for
that this is a convenient On that basis, it has to be better to nudges.

Nudge – encouraging behaviour change 19


Push, pull, nudge – how can we help customers save water, energy and money?

It has to be better to influence


behaviour by design than to
influence it by accident

Is water use suitable Consumers might benefit from Daily Water-using


for nudging? nudging when their decisions: use products
Consumers experience the benefits
of water use straight away. But
involve benefits now, incurring costs  
later
households with a water meter do
not incur any costs until their next bill are difficult  
arrives. Unmetered households’
decisions about water use do not
are rare, so that there is no opportunity  
to practise
incur any costs at all because their
bills do not relate to how much water
they use. For all consumers, the
do not give rise to feedback, from which  
they can learn
environmental costs of their choices
are remote – either because they have to be made without properly  
occur later, or because they are just understanding their own preferences
not apparent to the consumer when
they do occur.
opportunity to practise. They make then, that research carried out for
For similar reasons, making the decisions all the time about using us and the Consumer Council for
right decisions about water use is water, but they typically receive very Water found that metered
not easy because it is difficult to little feedback on their use. At best, customers did not know how
assess the full costs. most metered customers receive a many units they typically used, or
bill that explains how much water what they paid for each unit.
Consumers only rarely buy products they have used in total over a
that use water, so they have little period of time. It is not surprising,

20 Nudge – encouraging behaviour change


Water today, water tomorrow

How nudge might work • to incentivise all customers to act in their own best interests. Many
save water. unmetered customers would benefit
Lessons from behavioural from lower bills if they were to
economics can help drive more We consider each of these in more choose to have a meter, yet they do
sustainable water use in at least detail on the following pages. not do so.
three ways, including:
Increasing meter One way of challenging this
• as a means to encourage resistance is to make use of our
customers to opt for a water
uptake natural tendency to behave
meter; Resistance to change is a common according to socially acceptable
• to promote behaviour change feature of consumers’ behaviour. It conventions or standards (‘social
among metered customers; and is also why people do not always norms’). The water companies have

Nudge and traditional water efficiency


measures
The water companies have a legal duty to promote efficient water use.
We set them targets for the work they must do to meet this duty. They
can carry out various activities to achieve these targets, including
providing information and distributing water-saving devices.

These traditional measures have a strong nudge component. They


recognise that people do not always make decisions that are in either
their own or society’s best interests. So they encourage behaviour
change essentially by raising awareness and making it easier for
people to act. The success of doorstep recycling collections illustrates
the potential impact of this approach. Recycling rates in the United
Kingdom doubled between 2003 and 2008. More widespread doorstep
collections were a key factor, saving people the hassle of visiting their
local recycling points.

Nudge – encouraging behaviour change 21


Push, pull, nudge – how can we help customers save water, energy and money?

observed that requests for meters system, customers can go back to water company meter them
sometimes increase significantly unmetered charges up to 12 compulsorily.
in particular locations through months after their meter is installed.
word-of-mouth by customers. So, if An opt-out system could extend this Promoting behaviour
they were to promote metering period to two years. The companies
more actively, one option would be could continue to charge on an
change by metered
to target promotion at a community unmetered basis in the first year, customers
level, highlighting the proportion of while providing comparative
customers locally or more widely metered and unmetered bills. While metered customers enjoy the
who already have a meter. Customers could then have a benefits of water use straight away,
second opportunity to opt out before they do not incur costs at the same
A more powerful nudge would be to paying metered charges in the time. Nor do they typically receive
change the current system of second year. And they would have a much information about those
opting-in for a meter to one in which third opportunity to opt out at the costs, either when they receive their
customers had to opt out. In their end of the second year. bills or at any other time. We know
2003 article ‘Do defaults save
lives?’, Johnson and Goldstein We are not
illustrated the effectiveness of this advocating an
particular approach to organ opt-out system,
donation consents. and the UK and
Welsh Assembly
But there is a risk that an opt-out Governments
system could be seen as have no plans to
manipulative, even if – technically – allow the
it allows freedom of choice. Some companies to
customers might feel that they were meter on this
tricked into having a meter. basis. But it
might be more
On the other hand, safeguards acceptable to
could make this approach more customers than
acceptable. Under the current having their

22 Nudge – encouraging behaviour change


Water today, water tomorrow

that having a meter generally previously used more than the changes in their own usage so that
reduces water use. But it probably average for their neighbourhood. they could identify the causes of
does so mainly by increasing But their usage increased when high use and find ways to reduce it.
general awareness that there is a they were told that they used less Perhaps the most useful conclusion
cost consequence of using water. than average. In this case, to draw from this is that it
Customers are often unaware of relying on social norms was would be wrong to rely on
how much any particular volume of positively unhelpful. the results of any given
water costs them, or of the pattern study, and better to
of their water use over time. In the same study, a adapt strategies in light
more effective nudge of experience.
Most metered water bills contain was to include a picture
only very high-level information. of one of two facial Smart meters can
They report total water use in the expressions (‘emoticons’) in provide useful information
billing period and the charges each bill. to customers. Rather than
arising from that use. More helpful simply recording water use,
bills provide comparative Above-average users they can show the cost of
information. For example, they received an unhappy use over much shorter
show how a customer’s use has emoticon, while below- periods of time. Yet
changed compared with previous average users received here again, the effects
billing periods, and how it compares a happy emoticon. High could be perverse. If
with typical use for particular users reduced their water prices understate
household groups. But even this consumption by even the full economic cost of
information might have relatively more than they did when supply, including the
little value if customers do not simply presented with the facts. environmental and social costs,
bother to read their bills in any Significantly, and even more then there is a risk that consumers
detail. helpfully, low users did not increase will use too much.
their consumption.
It would not necessarily incentivise There is also a risk that they would
desired behaviour either. In 2007, a By contrast, a study by the Energy greet more detailed information
study in the United States found Saving Trust found that people did about water use and its bill impacts
that consumers used less energy not want to conform to social norms. with indifference. Energy supplier
when they were told that they They found it more helpful to see Southern California Edison found

Nudge – encouraging behaviour change 23


Push, pull, nudge – how can we help customers save water, energy and money?

that using email and texts to update idea has much in common with the Incentivising all
its customers on the energy they emoticons described on the
consumed was ineffective. previous page, but it provides more
customers
Customers responded much more timely feedback. Some of our water use depends
positively when they were given an less on our day-to-day behaviour
Ambient Orb, which glowed red A report for the Energy Saving Trust and more on the technology we
when they used a lot of energy and by the Centre for Sustainable have in our homes. We have
green when they used little. The Energy published in 2010 – ‘The occasional opportunities to change

70
smart way to display’ – also found that technology – for example,

60
that consumers were more likely when we buy a new washing
to respond to simple machine or fit a new bathroom.

50 100 120 140


displays. Using evidence These purchasing decisions provide
from focus groups, it a significant opportunity to nudge

40 80 MPH 16
suggested that the consumers towards water-efficient
most effective products.
display would show
energy use rather The most obvious nudge in these
60
30
like a circumstances is an appropriate
speedometer, but form of product labelling. The point
with supporting of such schemes is to highlight a
40
20
information about key characteristic – water efficiency
the bill impacts. in this case – that might not

20 km/h otherwise have registered on the

10
As in the case of purchaser’s radar. The Bathroom
billing information, we Manufacturers Association (BMA)
would not advocate any has developed its own water
particular approach to smart efficiency labelling scheme, and we
meter displays. Our point is simply support its efforts.
that the design of these displays will
be critical to how effective they are It will be important to monitor the
at influencing behaviour. effectiveness of the BMA’s scheme,

24 Nudge – encouraging behaviour change


Water today, water tomorrow

and to identify ways to improve it. effect on purchase


For example, a report for Defra on decisions.
‘Behavioural economics and energy
using products’, which was In other markets,
published in 2010, noted that manufacturers and
people tend to under-value future retailers reassure
costs, focusing instead on purchase consumers with
price. The report suggested that additional information.
appropriate framing of information For example, car
on future running costs could help buyers can compare
to address this problem. In the performance statistics
BMA’s scheme, information about and test prospective
running costs is not explicit – it is purchases before they
only implied by a water use rating. buy, so they need not
This might be appropriate, but it automatically equate
depends what other information fuel efficiency with
consumers receive. inadequate
performance. A wider
The problem is that consumers package of point-of-
might think that more water-efficient sale information can
versions provide less effective also help with water-using products. suggests that consumers are
performance. No one wants to But there might be less of a risk if swayed much more by a desire to
shower under a trickle of water. In the efficiency label provided a rating avoid losses. So, a scheme could
fact, technology has improved so without stating the volumes of water be more effective if it emphasised
that the experience from water- explicitly. As an example, energy that buyers would lose money if
efficient products is often effectively efficiency labels use an A-G scale. they bought less efficient products.
the same as the experience from
products that use more water. But Product labelling schemes tend to
as long as consumers perceive emphasise the savings that
otherwise, there is a risk that consumers can make from buying a
labelling could have a perverse particular product. Yet research

Nudge – encouraging behaviour change 25


Push, pull, nudge – how can we help customers save water, energy and money?

Green Deal
Who should take
Research suggests that consumers place too low a value on future responsibility for
costs – and future cost savings. So they are less likely to buy
expensive products like loft insulation, which save money on future nudging?
energy bills. The Government developed its
‘Green Deal’ initiative to help overcome this Nudges are a potentially effective
problem. way to encourage more sustainable
water use. But who should be
Under the Energy Bill, the doing the nudging?
Government plans to introduce the
Green Deal to allow people to The water companies are
finance energy efficiency obvious candidates. As
improvements at no up-front cost. retailers, they have a direct
Instead, they will repay the cost relationship with consumers,
through a charge on their future so they have the best
energy bills. opportunity to nudge. They
also have a clear motivation
Hot water provides a strong link because they have a duty to
between water and energy – it accounts promote efficient water use. Yet
for about 25% of carbon emissions from the some nudges will only succeed if
home. So, the Green Deal can include measures to consumers trust the organisation
improve hot water efficiency, as long as the expected financial savings doing the nudging. Since
are equal to or greater than the costs. consumers do not always trust their
water company, other organisations
Customers who are interested in the Green Deal will receive might be more successful at
accredited, objective advice as part of an initial assessment visit. In delivering certain nudges.
‘The Green Deal – a summary of the Government’s proposals’, the
Department of Energy and Climate Change said “...we are looking at In this document, we have already
how best to use [this advice] to give consumers a wider range of suggested that other stakeholders
information about steps they can take to improve the sustainability of could play a part. So, property
their homes, including water efficiency.” developers could encourage more
efficient water use by offering
homebuyers more say in the water-

26 Nudge – encouraging behaviour change


Water today, water tomorrow

using technologies they install in • Our service incentive mechanism that they do. We should then be
new homes. Manufacturers of these (SIM) is designed to encourage able to give the companies greater
products are already contributing the companies to innovate to flexibility to identify whatever
with labelling schemes. And trusted deliver service improvements that combination of measures will
retailers could play an important consumers would value. Nudge balance water supply and demand
role through their involvement in the measures can improve the in the best interests of consumers
Green Deal. consumer experience by helping and the environment.
customers to help themselves.
Our role So, effective nudges should • We can help the companies to find
improve the companies’ the most effective ways to engage
As the economic regulator, we can performance under the SIM, and with consumers.
help in a number of ways. we will reward them accordingly.
• Customers want to have lower
• We can incentivise the companies • As part of our work to help bills, but often they do not have
to use nudges to achieve socially improve the evidence about smart the time or the knowledge to find
beneficial outcomes. For example, metering, we will take account of ways of reducing the amount of
we allow them to count against the potential for smart meters to water they use in order to reduce
their water efficiency targets the help the companies nudge their bills. They need help. Water
estimated savings they achieve consumers towards more suppliers help as part of their
from providing information, sustainable water use. customer service. But we think
education and other nudge that there is scope for them to
measures. To date, we have set a • We are reviewing the way in improve. We want suppliers to
30% limit on the contribution that which we regulate. As we deliver the kind of service that
these ‘soft’ measures can make. explained in ‘Beyond limits – how customers would enjoy in a
We plan to remove that limit as should prices for monopoly water competitive market. Experience in
part of a package of changes that and sewerage services be other sectors reveals that
would incentivise the companies controlled?’, which we published companies provide better service
to provide better information on in July 2010, we want to focus when they have an incentive to
the actual impact of water more on incentivising outcomes, focus on the different parts of their
efficency measures. In turn, this rather than outputs or inputs. In business, including retail. We think
should help the companies to order to do this, we need to that it is possible to create that
make better decisions in future understand why the companies incentive by reforming the retail
about which measures to use. react to our incentives in the way licence framework.

Nudge – encouraging behaviour change 27


Push, pull, nudge – how can we help customers save water, energy and money?

6. Conclusions and next steps


It is in all our interests to use water include safeguards to protect those
wisely, but we do not always act vulnerable and low-income
accordingly. In this document, we households whose bills would
have explored some of the different increase.
ways to achieve more sustainable
water use. Metering is the most obvious way
to give volume-related charges a
There is an obvious advantage to greater role in encouraging
measures that achieve more behaviour change. There is also
sustainable water use without scope to use different tariff
relying on behaviour change. structures to send better price
Regulations that require water-using signals.
products to be more efficient already
make a valuable contribution. The But we should not rely on price
potential to do more is constrained signals alone. Consumers can be
by rules around barriers to trade, nudged towards more sustainable
and concerns about imposing water use. With better information
burdens on business and limiting and more helpful feedback,
freedom of choice. But there are consumers should make better
other ways of achieving similar decisions.
outcomes, and it makes sense to
continue exploring all of the options. Further work
Volume-related water charges have • Defra’s Water White Paper will
a vital role to play in encouraging include the Government’s policy
behaviour change, and they are the on water metering and water
fairest way to pay. So we think that efficency. Defra expects to publish
there is a strong case in principle for this in the summer.
a faster transition to more
widespread metering. Whatever the • We have started to assess the
speed of the transition, the impact of different rates of
companies must make it acceptable progress towards more
to their customers. This should widespread metering. Our initial

28 Conclusions and next steps


Water today, water tomorrow

You can help


results are only indicative, and position on retail separation. We
we plan to make our detailed then plan to consult on the next We welcome views on the
findings available soon. We are steps for our work on market issues we have raised in this
aware that there are a number of reform. document. We would be
areas where we need to develop particularly interested in your
the analysis. In particular, we • Together with the companies, we views on:
have excluded some costs and will continue to work with Ofgem
benefits because they are difficult to keep open the option for water • actions we can take to
to quantify, but we need at least to share the communications improve incentives for the
to consider how to take account infrastructure that will support the water companies to promote
of them. roll-out of smart energy metering. more sustainable water use;
• the impact of metering over
• With help from our Smart • We will assist the UK Government different timescales; and
Metering Advisory Group, we will as it develops detailed proposals • the potential for nudging
expand our metering analysis to for the Green Deal. consumers towards more
cover options for different types sustainable water use.
of meter. We will draw upon • We have set the companies
emerging findings about the mandatory water efficiency targets Please send any comments to
costs and benefits of various for each year between 2010 and waste.not@ofwat.gsi.gov.uk by
meter types in the energy sector. 2015. We will monitor their 14 April 2011.
Since 2007, Ofgem has run a progress, and consider how to
series of large-scale metering use regulatory incentives beyond
trials under the Energy Demand 2015.
Research Project (EDRP). When
the EDRP concludes in 2011, it • We will explore how behavioural
should offer some practical economics can help the water and distinct from those who are
insights into the costs and sewerage sectors deliver more unable to pay their bills). This
benefits of smart water meters. sustainable outcomes. We think could generate new options for
Defra’s Water White Paper will its role could go beyond water dealing with debt.
take account of the Group’s work. use. For example, it could include
improving our understanding of
• We also expect the Water White what motivates customers who
Paper to set out the Government’s choose not to pay their bills (as

Conclusions and next steps 29


Push, pull, nudge – how can we help customers save water, energy and money?

7. Further information
Ofwat publications

‘Waste not, want not – making the best use of our water’, Ofwat, June 2010.

‘Beyond limits – how should prices for monopoly water and sewerage services be controlled?’, Ofwat, July 2010.

Service and delivery report supporting information: ‘Security of supply’, Ofwat, October 2010.

‘Resilient supplies – how do we ensure secure water and sewerage services?’, Ofwat, November 2010.

‘Water meters – your questions answered: Information for household consumers’, Ofwat, November 2010.

Related information

‘Do defaults save lives?’, Johnson and Goldstein, Science, 2003.

‘The impact of household metering on consumption – further analysis’, UKWIR, 2004.

‘Nudge – improving decisions about health, wealth and happiness’, Thaler and Sunstein, 2008.

‘Deliberative research concerning consumers’ priorities for PR09’, water industry stakeholder steering group, 2008.

‘Public understanding of sustainable water use in the home’, Defra, March 2010.

‘Code for sustainable homes: a cost review’, Department for Communities and Local Government, 2010.

‘The Green Deal – a summary of the Government’s proposals’, Department of Energy and Climate Change, 2010.

‘Behavioural economics and energy using products’, Defra, 2010.

‘The smart way to display’, Energy Saving Trust, 2010.

30 Further information
Water today, water tomorrow

Further information 31
Ofwat (The Water Services Regulation Authority) is a non-ministerial
government department. We are responsible for making sure that the water
and sewerage sectors in England and Wales provide consumers with a good
quality and efficient service at a fair price.

Ofwat
Centre City Tower
7 Hill Street
Birmingham B5 4UA

Phone: 0121 644 7500


Fax: 0121 644 7699
Website: www.ofwat.gov.uk
Email: enquiries@ofwat.gsi.gov.uk

Photographs © Environment Agency, Getty Images,


iStockPhoto, DoortenJ, WWarby
Printed on 75% minimum de-inked post-consumer
waste paper
March 2011

ISBN 1-904655-89-0

© Crown copyright 2011

You may reuse this information (not including logos)


free of charge in any format or medium, under the
terms of the Open Government Licence. To view this
licence, visit http://www.nationalarchives.gov.uk/doc/
open-government-licence/ or write to the Information
Policy Team, The National Archives, Kew,
London TW9 4DU or email
psi@nationalarchives.gsi.gov.uk.

This publication is also available on our website at


Sustainable www.ofwat.gov.uk. Any enquiries about this publication
water. should be sent to the above address.

You might also like