A study on the impact of water pricing policy on regional economy based on a computable general equilibrium model: a case study of Beijing

The current water supply pricing management policy for hydraulic projects introduces new challenges and opportunities in water pricing design, particularly under the ‘permitted cost-plus-reasonable-return’ approach. This study develops a computable general equilibrium (CGE) model tailored to the unique characteristics of a water diversion project. The model incorporates multi-source water substitution and user preferences to evaluate the socio-economic impacts of water price adjustments. Using Beijing as a case study, the research examines key indicators such as water use, regional GDP, and CPI under various pricing scenarios, including phased adjustments. The results show that recalculated water prices under the new policy are 71% higher than initial estimates, mainly due to including investment profits in the pricing mechanism. Simulations reveal that a 2–5% increase in water prices decreases regional water use by 0.028–0.070%, increases the CPI by 0.0028–0.0071%, and decreases the GDP by 0.0001–0.001%. Moreover, phased pricing adjustments are shown to minimize short-term economic disruptions. These findings offer valuable insights into optimizing water pricing mechanisms and their implications for regional economic stability and resource management.