Families and householders will end up paying the cost of supposedly "free" water when charges are introduced in October.
The Economic and Social Research Institute (ESRI) says the costs of providing the "free" water are likely to be passed on to customers in the form of higher charges for the water they end up using and paying for.
An unpublished report -- commissioned by the Government at a cost of €55,727 -- says plans for the free allowance could also result in owners of holiday homes escaping charges.
This is because they could bank the unused water allowance for periods when they do not use the property, resulting in little or no bills.
The Government plans to allocate each home in the State a free allowance of water, and after this amount is used charges will be applied.
Details of the allowance are expected to be announced next month, along with measures to help people on low incomes and those with medical conditions pay their bills.
However, the ESRI says free water will have to be paid for either in the form of a higher charge for the water used, or through a state subsidy that will be funded by taxpayers.
The comments are significant as the Department of the Environment specifically asked the economic think-tank to examine how people on low incomes could be helped pay their bills when the first bills land in January next year, backdated to October.
Its report, 'Affordability in the Provision of Water Services in Ireland', has been with the department since last February. The research examines the costs and benefits of addressing the problem of so-called "water affordability".
Report co-author Dr Edgar Morgenroth told the Irish Independent that the cost of providing water to more than 1.35 million homes in the State would be met by customers of Irish Water, who would end up paying the cost of all water produced.
"The free allowance isn't going to do anything," he said.
"If everyone consumes 100 litres a day, and you get a free allowance of 50 litres, it doesn't benefit anybody. You just end up paying double for your 50. The unit cost just increases for the water you end up paying for.
"If it's so generous, you could end up with properties not occupied during the year ending up paying nothing, holiday homes for example.
"I think the free allowance won't work. There's a certain amount of water you expect people to use. You don't subsidise them for excessive use. You don't pay for everything they use, because that doesn't encourage people to conserve."
Tanaiste Eamon Gilmore has insisted that "hard-pressed families" will be protected as much as possible from the impact of water charges.
"As far as the Labour Party is concerned, we will want to ensure that any charging for water is to the lowest extent possible on hard-pressed families and households experiencing financial pressure," he said.
The ESRI report outlines a range of scenarios for Government on how charging would affect a range of family sizes and individuals, based on income and their reliance on social welfare payments.
Dr Morgenroth said a free allowance to every customer would not help address affordability because it was not targeted. In Germany, he said, people on low incomes were helped to pay their bills through social welfare payments.
"Analysis of a range of options shows that the most effective and efficient way of dealing with it is by going for something which is extremely well-targeted," he said.
"Don't have broad-brush policies. Don't give everybody over 65 or everybody on social welfare something, because it's a very crude tool.
"You need to find a mechanism to target those people (in need) and that's ultimately best done through the social welfare and taxation system because it knows your circumstances."
The Department of the Environment said that details of the free allowance and affordability issues would be revealed next month.