This report examines the case for adopting pricing approaches for the efficient management of externalities within the urban water sector.

It provides a valuable source of analysis for the parties to the National Water Initiative to deliver on their commitment to implement pricing that includes externalities where found to be feasible.

This report suggests that in many cases, the necessary preconditions do not exist for effective use of price signals to manage externalities. The report provides a set of recommended actions to assess systematically the potential role of externality pricing. It also highlights the continuing effort required to develop mechanisms for measuring externalities so that they can be incorporated better into policy processes.

This commissioned study has been undertaken by Frontier Economic and is intended to provide a basis for further discussion and to encourage further analysis by government, industry and other interested parties.