Per capita, the city pays just US$33 per 100 cubic metres of water compared to London’s US$258, Tokyo’s US$141 and Seoul’s US$53. Two thirds of users still pay less than HK$50 a month for water.

The government’s own Working Group on Long-Term Fiscal Planning last year suggested a rate review given the fiscal burden of more expensive water imports.

But should tariffs be raised to curb consumption?

Dr Frederick Lee Yok-shiu, director of the University of Hong Kong’s Water Governance Research Programme, said an increase was needed, but only to a level of cost recovery.

At domestic rates of HK$4 per cubic metre of water, only about half of production costs are covered.

But Lee added: “Between pricing and non-pricing methods, it has been shown that non-pricing methods are more effective [at reducing water consumption] as prices are already very low.”

Traditional economic theory suggests a price increase will lead to a drop in consumption. However, economists say this principle does not work for a utility, owing to the relationship between the price and quantity demanded, also known as the “price elasticity of demand”.

“Using price as a tool to control water consumption will have a limited effect,” said City University behavioural economist Dr Li King-king. “Consumers do not have alternative choices.”

Li said in a low-price regime, consumers, particularly those aware of the need for environmental protection, may be well aware of the implications of using lots of water.

“But when the price increases, they may see [water] purely as a consumption good, like candy, and thus increase consumption ... They think that they already pay for it so it is OK to use as much as he or she wants,” he added.

“The extrinsic motivation may crowd out the intrinsic motivation of saving the environment.”

Li said studies had shown that comparative tactics such as benchmarking – comparing one’s water bill to that of a neighbour’s – work better at reducing consumption than a small increase in tariffs.

CLP Power is already experimenting with this by comparing customers’ bills to those at households with “similar profiles”.

“Psychological tactics” such as SMS reminders on usage may also work, Li said.

“These are very minor things but together, they have a cumulative effect.”

Waterworks have been running deficits since 1998 and they continue to be heavily subsidised.

The purchasing cost of water from the Dongjiang, a river in Guangdong, is now at 45 per cent of annual operating costs, up from 39 per cent a decade ago.

To effectively control usage, Lee of HKU argued for a “packaged” strategy that would involve revising the supply contract with Guangdong in a more flexible arrangement and setting hard targets for reduced use.

Up to 80 per cent of the city’s fresh water is drawn from the Dongjiang, which also supplies a handful of other cities. Hong Kong, however, is contractually guaranteed supply and priority for more water than it needs. “From an academic standpoint, this contract is perverse,” Lee said.

The Water Supplies Department and the Financial Services and the Treasury Bureau said the government was periodically reviewing water tariffs according to the “user-pays” principle, taking into account affordability, financial performance of operations, economic conditions and the views of legislators.

But Democrat Helena Wong Pik-wan, the lawmaker who exposed the lead-in-water scandal, said any move to review tariffs before the department was able to regain public confidence “would probably cause a riot”.

“Now is not the time to discuss this at all,” she said.

Wong said subsidising livelihood-related public utilities was appropriate and there was no need to raise tariffs to cost-recovery levels.