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Push, pull, nudge – how can we help customers save water, energy and money?
7. Further information 30
2 Contents
Water today, water tomorrow
• 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.
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
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
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.
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,
This is a significant amount when set against the daily average of 150
litres per person.
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.
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
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
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
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.
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
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,
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-
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.
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
‘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.
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
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