Accounting for Environmental Costs in Public Utility Pricing: A Case Study of Zambia’s Water Sector

This study explores the integration of environmental costs into water pricing in Zambia’s water sector using Environmental Full-Cost Accounting (EFCA) and Material Flow Cost Accounting (MFCA). The research provides empirical insights into the practical inferences of incorporating environmental externalities into public Water Utility accounting regulated by National Water and Sanitation Council (NWASCO). Data was collected through structured interviews and documentary analysis of reports and policy documents. Findings reveal that current tariff structures do not reflect environmental externalities, resulting in underpriced water services. The paper proposes a framework to internalize these costs through cross subsidies, environmental surcharges, MFCA adoption, and recognition of natural capital in financial reporting. It further recommends amending the Water Supply and Sanitation Act (1997) to include environmental cost recovery and sustainability accounting as regulatory goals. These policy interventions aim to enhance the financial and environmental sustainability of water Utilities in Zambia