Rethinking the economic regulation of wastewater reuse in an era of emerging but unpredictable risks

This paper considers the dilemma of wastewater reuse through the lens of Australian economic regulation. We explore the potential conflicts between the mechanisms built into ‘building block’ approaches to price setting, the proclivity of regulators to resist speculative projects and the shift in some Australian jurisdictions to place greater credence on the preferences of customers. We argue that wastewater utilities might legitimately seek to invest to reduce the likelihood of harm from emerging contaminants in wastewater, even if environmental and health regulators cannot accurately articulate risks. We find that application of business-as-usual economic regulation can stifle investment in wastewater treatment infrastructure, potentially leaving utilities ill-equipped to manage the emerging risk. We call for additional research to better understand the risk preferences of the communities that ultimately pay for wastewater services, as this can inform more efficient investment decisions.