Payments for Watershed Services: Pilot Projects for Watershed Protection

Forested watersheds of the southern United States provide numerous services to the region. At no cost, they purify water, control flooding and erosion, and provide places for people to relax and have fun. Yet despite their value, many watersheds are under threat from development and poor land management.

“Payments for Watershed Services” (PWS) programs are one strategy to keep watersheds healthy. Through a PWS program, landowners receive financial incentives to conserve, sustainably manage, and/or restore watersheds to yield the kinds of benefits described above. The World Resources Institute’s new issue brief, Insights from the Field: Forests for Water, looks at three potential PWS programs in the Upper Neuse Watershed in North Carolina, the Sebago Lake Watershed in Maine, and throughout the city of Raleigh, North Carolina. This brief also shares some insights gleaned from the work in progress.

The Pilots

1. Beneficiary Analysis of the Upper Neuse River Watershed, North Carolina

To promote PWS in the Upper Neuse River Watershed of North Carolina, WRI conducted a “beneficiary analysis” that identified major users of water from the Falls Lake reservoir, including residents, universities, food and beverage companies, electronic and semiconductor companies, and manufacturers of health care and textile products. The analysis also looked at the groups’ water risks, i.e. the amount their operations could be affected by changes to the local watershed. WRI helped these water users understand their risks, and the opportunities for investment in “green” infrastructure such as forest conservation and restoration.

2. Green-Gray Analysis in the Sebago Lake Watershed, Maine

WRI recently teamed up with the conservation organization Manomet Center for Conservation Sciences (Manomet) in Brunswick, Maine, to investigate a PWS program that protects green infrastructure like forests and streamside forest buffers to protect the City of Portland’s water supply. Green infrastructure can be a more cost-effective investment than building or repairing “gray” infrastructure such as water filtration or wastewater treatment plants.¹ We developed an economic model for comparing green versus gray infrastructure costs to investigate a “green-gray” investment tradeoff facing the Portland Water District (PWD). PWD currently has an Environmental Protection Agency (EPA)-granted filtration waiver. Its water quality has traditionally been high enough that filtration is not necessary. However, if water quality entering Sebago Lake deteriorates as a result of upstream development, PWD could lose the waiver, meaning it would have to build an expensive new filtration plant.

3. City of Raleigh Unified Development Ordinance

The city of Raleigh’s Unified Development Ordinance (UDO) is another opportunity to incorporate PWS programs into land-use planning in order to promote clean water and protect forests.WRI completed a regulatory analysis of the UDO – a compilation of regulations on land use -- that identified six opportunities for protecting forests and open space within and around the city through various payments for environmental services programs, including PWS. For example, the UDO’s proposed storm water requirements can be implemented more cost-effectively if they include an option for developers who cannot meet storm water runoff goals to purchase credits from others who protect and restore forests for their flood mitigation services above and beyond legal requirements in other areas.

Insights to Date

Our case studies to date have focused on building demand for PWS by highlighting incentives and payment opportunities. WRI’s new issue brief highlights some useful insights for PWS development, including:

Identify beneficiaries: Successful PWS programs are driven by demand from public and private entities. Identifying these entities and helping them to understand the risks they may face if water quality and supply are jeopardized by future land-use trends or harmful management practices is a key first step in setting up a PWS program. In the Upper Neuse Watershed, we researched the top water users and are now working with our partners to engage these beneficiaries to better understand their specific interests and concerns, and to help them understand the importance of green infrastructure and benefits of participation in emerging PWS programs.

Make the financial case: A general interest in conservation is not always enough to encourage public investment managers and water users to participate in PWS or invest in green infrastructure. The financial and business case needs to be clear and convincing in terms of cost savings or net public benefits.

Preliminary results indicate that investing in green infrastructure could represent a cost-savings of $68 - $72 million (or 51% - 76%) over a 20-year period.

For the Sebago Lake Watershed, WRI conducted a preliminary economic analysis of how the PWD and other stakeholders could minimize costs to meet EPA water quality requirements by investing in green infrastructure elements, rather than investing in a water filtration facility. We worked with our partners to identify green infrastructure elements that would help maintain or improve water quality into the Sebago Lake. These elements include conservation easements, forest certification, streamside forest buffers, culvert replacements, and reforestation. Our preliminary results indicate that investing in green infrastructure could represent a cost-savings of $68 - $72 million (or 51% - 76%) over a 20-year period (see Figure).

[image portland_water_district.png width=650 popup=yes In Portland, ME, preliminary results indicate that investment in a package of green infrastructure options could represent a cost savings of $68 million or 51 percent, relative to the gray infrastructure option in the low-cost scenario, and savings of $72 million or 76 percent in the high-cost scenario in present value terms over a 20-year period. (Click to enlarge)]

We also estimated ancillary benefits that result from investing in green infrastructure including carbon sequestration and landlocked salmon habitat provision. Generating these public benefits can be an important part of the mission of public entities such as PWD. Together, these two services have an estimated present value of $75-125 million. WRI’s methodology described in the issue brief and in other ongoing WRI research² can be replicated for water utilities in other watersheds and provide the basis for scaling up demand for PWS.

Consider alternatives to conventional regulatory programs: PWS programs can help the city of Raleigh meet the goals and objectives of its UDO in a more cost-effective manner. Currently, Raleigh’s UDO is written to grant exemptions to landowners who cannot comply with storm water requirements. These landowners are required, in lieu of compliance, to make payments into a public fund that is used to finance conservation activities that may be implemented within the UDO or elsewhere in the county or state. Under a PWS program developed to help implement the UDO, developers who find it prohibitively expensive to meet on-site storm water pollution goals could purchase storm water pollution credits generated from green infrastructure elements such as streamside forest buffers or wetlands. WRI will continue to engage the city of Raleigh throughout the UDO process to advance opportunities for PWS that can help reduce the overall cost of implementing the UDO.

Conclusions

Market-based solutions like PWS can play a large role in bringing flexibility and cost savings to public investment decision-making and communities’ land-use planning processes. Clear demonstration of cost-savings or public benefits as well as documentation of water quality and quantity risks can help garner interest and bring diverse participants to the table. Demonstration of additional benefits such as carbon sequestration and salmon habitat restoration may help tip the balance in favor of green infrastructure investments in the future.