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Hubei Province’s Water Tax Reform: Balancing Sustainable Management and Economic Considerations

CRISIS - Biosystem Viability by Karnik Aswani Asia Nov 10th 20235 mins
Hubei Province’s Water Tax Reform: Balancing Sustainable Management and Economic Considerations

Water resource economics is an important economic discipline that should not be ignored. In regions facing water supply challenges due to factors like increased economic activities and environmental concerns, the Chinese province of Hubei is pioneering a water tax reform model. This model, which may soon become official policy, aims to address these issues. It includes scenarios such as taxing different water sources and offering subsidies to water users, providing a chance to manage water resources more sustainably.

Why Is Water Important in Economics?

A primary concern in the field of water economics is the issue of water supply, primarily stemming from the constraints imposed by limited water supplies. This challenge is influenced by a multitude of factors, including heightened economic activities, growing environmental apprehensions, and the inadequacy of water infrastructure from a technical perspective. The net effect of these challenges is the potential occurrence of water deficits, particularly noticeable during periods of reduced water availability.

In addition to addressing water supply challenges, it is crucial to consider the distinction between regulated and unregulated water bodies, with a focus on reservoirs and dams as examples of regulated sources. Regulated water bodies, despite their management structures, can still encounter local water deficits for various reasons. These challenges may arise from factors such as insufficient regulatory capacity within existing reservoirs, underutilisation of available water resources, and technical inadequacies in the water infrastructure. Conversely, unregulated water bodies lacking control mechanisms may also grapple with water deficits. Even when the water supply appears adequate, these areas may face difficulties due to technical limitations in their water intake and distribution infrastructure.

You might also like: Water Shortage: Causes and Effects

Approaches to Water Challenges

To tackle the complex challenges associated with sustainable water use in regions facing water deficits, it is imperative to employ effective strategies. One pivotal approach involves the construction of new reservoirs and the refurbishment of existing ones, significantly augmenting water storage capacity. This expanded storage capacity is vital for maintaining a steady water supply and mitigating local deficits that might arise. Furthermore, a well-executed management strategy entails the redistribution of river flow, both within and between basins. This ensures the consistency of water supply and serves as a countermeasure to local deficits.

An equally critical aspect of the sustainable water management framework is the enhancement of the technical competence of hydro engineering infrastructure. This encompasses improvements in water intake facilities, storage systems, and distribution networks. By bolstering the technical aspects of these critical components, reliable access to water resources is assured. 

Lastly, the utilisation of resources in a responsible and efficient manner is integral to sustainable water management. Implementing measures that encourage judicious use of water resources is indispensable in addressing the multifaceted challenges associated with water deficits. 

These comprehensive strategies collectively contribute to the sustainable and efficient use of water resources in regions where water deficits pose a significant concern.

Water Tax Reform Model

In the Chinese province of Hubei, a water tax reform model has been developed and is on the path to becoming a policy. 

The model presents four key scenarios: S0, which involves no water resource tax; S1, where a tax rate is based on surface and groundwater use in all industries; S2, which imposes a 5% higher tax rate on water-intensive industries; and S3, proposing a high tax rate on industries with substantial water consumption and offering tax refunds to water users through subsidies.

These scenarios consider various water sources, including conventional water (surface and groundwater) and unconventional water, which is not subject to water resource taxes. The total water consumption is calculated as the sum of conventional and unconventional sources.

Subsequently, an impact assessment will be conducted, evaluating these policy scenarios from multiple angles. The assessment will analyse how each scenario affects total water consumption and the use of conventional water across different industries. It will also gauge the efficiency of water utilisation in economic activities. Notably, the outcomes of implementing these policies indicate adverse economic effects, particularly in the agricultural sector.

Before implementing recommendations, the model must compare scenarios to strike a balance between water conservation and economic sustainability, considering factors such as water conservation effectiveness and economic impact.

The recommendations put forth include differentiating tax rates based on industries’ water dependency, strategically utilising the revenue generated from water taxes, and ensuring effective oversight of water users and transparent data disclosure. 

Differing tax rates can incentivise water-saving practices by imposing higher taxes on sectors heavily reliant on water. The generated revenue can establish a reward fund, offering subsidies to production departments to promote water conservation while mitigating any negative economic impacts. Effective supervision of water users and transparent data disclosure aim to ensure efficient tax collection and prevent monopolistic practices within the water sector.

Water Pricing System

In Hubei Province, the existing water pricing system does not fully reflect the actual value of water resources, resulting in a significant disparity between current water prices and estimates based on resource value. To rectify this, there is a need to adjust the pricing structure, potentially leading to higher water prices that more accurately represent the true value of water resources. 

This adjustment would involve tailoring pricing for various industries, acknowledging their distinct water usage needs. This approach is designed to drive greater efficiency in water consumption, particularly among sectors with high water demands, ultimately fostering incentives for water-saving practices.


The strategy of raising water prices is a means to cultivate awareness about the significance of water conservation and improve the efficiency of water resource utilisation. By implementing these price adjustments, the policy aims to curtail water consumption, especially within industries with substantial water requirements. This, in turn, can contribute to the stimulation of economic growth and heighten consciousness regarding responsible and efficient water use.


Hubei Province’s water tax reform model is a promising step toward sustainable water management. While it presents some economic challenges, it seeks to strike a balance between conserving water and maintaining a strong economy. By adjusting water pricing to better reflect its value and encouraging water-saving practices, this policy shows a commitment to responsible and efficient water use. In regions dealing with water deficits, implementing strategies like building reservoirs, improving infrastructure, and using resources wisely is crucial to ensure a reliable and sustainable water supply for current and future generations.

You might also like: Exploring the Most Efficient Solutions to Water Scarcity

About the Author

Karnik Aswani

Karnik Aswani, a data science and engineering management enthusiast with dual master's degrees and a strong background in engineering and science. Proficient in analytics techniques, he aims to merge his diverse skills in data science, engineering, and business to drive innovation and success as an aspiring entrepreneur.

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