The impact of smart meters on residential water consumption: Evidence from a natural experiment in the Canary Islands

• Published in: Resource and energy economics 2021-05, Vol.64, p.101221, Article 101221
• Main Authors: Daminato, Claudio, Diaz-Farina, Eugenio, Filippini, Massimo, Padrón-Fumero, Noemi
• Format: Article
• Language: English
• Subjects: Behavioral change; natural experiment; smart meter; Water conservation
• ISSN: 0928-7655; 1873-0221
• DOI: 10.1016/j.reseneeco.2021.101221

•Rigorous identification strategy exploiting quasi-experimental variation.•Large panel dataset with water consumption data from the utility.•Water meter replacement induces an increase in measured water consumption.•Installation of smart metering technology induces a households behavioral response.•Suggestive evidence of consumers engagement with portal as main behavioral mechanism. Smart meters can promote behavioral changes and water conservation by improving information and providing feedback about water consumption to households. In this paper, we evaluate a large-scale programme implemented by the municipal water company of La Laguna (Tenerife). Exploiting quasi-experimental variation brought about program, we estimate the effect of water meter replacement on measured water consumption and the behavioral effect of the installation of the smart metering technology allowing households to access daily water consumption and real-time feedback through an online portal. Our main empirical analysis employs a difference in differences identification strategy and uses annual consumption data from 51,674 households observed over 10 years. We find a positive effect of water meter replacement on measured water consumption. Our main finding is that providing access to the smart metering technology induces households to reduce consumption by around 2% on average. Our results point to consumers’ engagement with the information portal as the main mechanism behind the observed behavioral response.