Understanding True Cost of Water

Water has traditionally been undervalued by many and does not accurately represent the true cost of water to a company, thus the financial incentives that encourage companies to manage water efficiently just are not there. Because the true and full cost of water has not been adequately expressed, investments in water management and water efficiency have not historically scaled with GDP. As a result, instead of becoming more productive with an important and less abundant resource, many economies are becoming less productive and efficient because there is little incentive to discourage waste.

When businesses can understand the true cost of the water they are using, they will see a better return on investment on potential water efficiency and water reuse projects and will be more likely to invest in these types of projects. The true cost of water would include all costs associated with purchasing the water, the energy to pump the water, the energy to heat water, the energy to treat the water (if treating pre or post use) and the costs of disposing the water. With some tools, it's actually possible to take this a step further by including calculations on the potential costs associated with water-related risks. Quantifying the true cost of water for each of an organization's facilities will help more accurately understand the real cost savings behind potential water conservation investments.

Tools to Calculate True Cost of Water

There are a few tools that have been developed to help companies more accurately price their water use including the Beverage Industry Environmental Roundtable’s True Cost of Water Toolkit, Veolia True Cost of Water and a true cost of water tool developed by Rutgers University.

Beverage Industry Environmental Roundtable (BIER) True Cost of Water Toolkit

This interactive tool can help facilities within the beverage industry and beyond to better determine direct costs associated with their most water-intensive processes. The toolkit defines a set of pinch points or processes within a typical beverage facility with high water cost variability. For each pinch point, a true cost of water tip sheet and easy-to-use calculation worksheet has been developed. After using the True Cost of Water Toolkit, many facilities find that their true cost of water is at least 2-4 times higher than they had originally thought based on simply using their water bill as a gauge.

Veolia True Cost of Water

Veolia Water Technologies is a French water company with 130 locations around the world. Veolia developed a metric tool called the “True Cost of Water” to help monetize both direct costs and externalities of water use in order to optimize decision-making in terms not only of risk management, but also of the creation of new opportunities. The tool combines traditional calculations of capital and operating expenditures with analysis of water risks and their financial implications for businesses and organizations. The four levels of cost accounting for the Veolia tool include direct costs, indirect costs, risk impacts and missed opportunities.

True Cost of Water Examples

While using Rutgers University’s true cost of water tool, Colgate Palmolive found that its average true cost of water is 2.5 times more than the purchase cost.

Yara Valley Water in Melbourne, Australia underwent a process to understand the total costs of their water use and found that each cubic meter of water conserved delivers $6 through avoided damage to the environment. With this information they can understand the true payback of investments in water efficiency and conservation improvements.

Jackson Family Wines Using True Cost of Water

Jackson Family Wines has used various true cost of water frameworks to help them understand the true cost of water for various operations, in various facilities from various water sources. Aaron Stainthorp, sustainability manager at Jackson Family Wines, spoke on the importance of understanding your organization’s true cost of water and describes the benefits they are seeing at Jackson Family Wines:

“We've used the Beverage Industry Environmental Roundtable’s True Cost of Water Toolkit, we've used other water calculators and we have also modified some. Right now, I am using the CSWA Water Budgeting Tool as well. They all pretty much do the same thing - you're assigning a value to water. In doing this, it's been really eye-opening because now when we start looking at water conservation projects, we can pretty quickly understand the dollar value to the company. It's been really useful for prioritizing different investments. It’s also very important because with each one of our sites there's a different cost of water. Using these tools helps us determine where we want to prioritize projects more than others.

Sometimes when we're deciding about how to invest money, we can also then assign a payback to making a switch. One example is with our cooling towers. A certain cooling tower was using a well water, and we were able to determine that switching to the municipal water source in that area would help us save a substantial amount of water, just because the water quality was higher. However, that actually had a higher initial cost because now we would be paying the city for water, whereas before we were using well water. But, just by looking at potential savings I could put together an ROI to determine that the amount of water savings we can achieve by running the cooling tower at higher efficiency is going to have a payback of six months because we have this internal cost of water calculated.

I think where it gets even more powerful is when we combine doing a true cost of water with detailed water balances of a facility, because then you can actually determine where you're using water and how much it costs for each single operation in the facility. Then it starts to be easy to make justifications for upgrading this equipment or why you are doing certain procedures.

Any sort of real time water meter is so valuable for this because as you go deeper and deeper into this exercise, the better data you have the better decisions you can make. A lot of times, facilities that would start doing a true cost of water or water budgeting exercise will realize that the granularity of the data may not be as much as they want. So, having those real time meters is pretty eye-opening to see all the information and seeing the variation by day, by month, by year and within sub areas of the facilities. This is what really helps you to make targeted decisions.”