2010: The Year in Watershed Payments and Trading

This past year has been formative for water markets – both inland and ocean – with Ecosystem Marketplace compiling the first-ever global assessment of all markets for watershed services and Forest Trends holding the first Global Katoomba Meeting focusing on marine ecosystem services.   Here’s a quick look back on the year that was in water.

 26 January 2011 | Last year began with a detailed examination of the economic drivers of ocean degradation at the Palo Alto Katoomba Meeting, which was organized by the Forest Trends Marine Ecosystem Services Program (MARES).   Towards the end of the year, in September, came World Water Week in Stockholm, where market solutions to watershed issues gained traction in a way never seen before at the now two-decade old global gathering.

In the middle, in June, came the Ecosystem Marketplace report State of Watershed Payments, which documented a $10 billion global watershed marketplace. The report is the first to combine water quality trading programs and payment for watershed services to offer a global snapshot of the total dollars transacted using Payments for Watershed Services (PWS) for the protection, restoration and better management of watershed services. Released at the global Katoomba conference in Hanoi, the report revealed that an innovative marketplace in payment for watershed services is rapidly emerging worldwide, as cash-strapped governments in countries as diverse as China, the United States, Brazil and Australia invest billions of public and private dollars in schemes that reward people who protect water resources.

Promotion of the report, aided by Burness Communications, resulted in media coverage in 17 countries across six continents and in six languages. Highlights of the media coverage included wire stories by Bloomberg News, Agence France-Presse, and Canwest News Service (Canada), which ran in print in several newspapers across Canada; an original print story in the prominent Mexican newspaper El Universal; original stories by GreenBiz.com, Vietnam Net and Pagina 22 (Brazil); and online pick-up by the Independent (UK), BusinessWeek, and France24.

The Palo Alto meeting asked the question of what oceans can gain from freshwater water-quality trading schemes, highlighting – among other things – the importance of mangroves as filtering forests, carbon sinks, and shelter for young fish – not to mention barriers against storm surges. At year-end climate talks in Cancun, a group of leading conservationists endorsed a plan to fold mangroves into REDD+ talks.

Indeed, as 2010 wound down, the convergence of water and climate change was becoming increasingly clear, as was water’s connection to, well, everything. The US city of Denver became the latest city to spend some of its water fees on trees launching a new PWS program to better protect the quality of the city’s drinking water by better managing the surrounding forest ecosystems that help deliver clean drinking water to residential and business consumers in Denver. With Denver, Santa Fe, NM following in the footsteps of the famed New York City watershed protection program, this may well be the beginning of a new trend of investing in green infrastructure related to municipal drinking water.

The Chesapeake Conundrum

Restoration of the Chesapeake Bay dominated the regulatory debate on water quality iIn May, and much of the rest of the 2010, with the Obama Administration’s   announcement that it was building a game-changing cap-and-trade water scheme for the Chesapeake Bay.

Environmental groups were split over the role of nutrient trading in meeting reduction targets, wherein an entity regulated under the TMDL who goes above and beyond their requirements can sell that extra nutrient reduction as a credit to another polluter. Agriculture groups, wastewater treatment plants, and municipalities were more broadly supportive. As envisioned, nutrient trading could give non-point sources like farmers (who remain largely unregulated) and construction sites an incentive to contribute to the Bay cleanup; at the moment there are worried that costs of meeting standards under the TMDL will fall mostly on urban areas and point-sources – all of which is covered in detail in the most recent WET Newsletter.

Speaking of the WET Newsletter, in case you missed any of the top stories throughout the year (either ours or those summarized in the newsletter) here are the most popular stories from 2010, based on actual reader numbers:

December 2010 WET:
“New Resources for Market-Savvy Farmers and Ranchers”
The Guide to Environmental Markets for Farmers and Ranchers, recently published by the American Farmland Trust, provides an overview of available market opportunities for environmental credits and services, how farmers and ranchers can get involved in them, and ways to encourage their continued growth. The guide emphasizes forms of market participation that complement, rather than replace, agriculture, and how to carry out a realistic assessment of options. The AFT developed the guide specifically for farmers and ranches in Washington State, but much of its content should be useful at a wider scale.   Encouragingly, the AFT found that a majority of farmers and ranchers in the state already have access to environmental markets opportunities or will in the near future.

October 2010 WET:
“WRI Investigates Benefits of WQT for Bay-area Farmers”
The World Resources Institute (WRI) has issued a series of working papers analyzing how a Baywide nutrient trading program could benefit farmers in Virginia, Maryland, and Pennsylvania.   In August, WRI receieved a $600,000 USDA National Resources Conservation Service Conservation Innovation Grant, to begin developing an online water quality trading platform and carbon estimation tool in the Chesapeake Bay watershed.

“Why Denver Spends Water Fees on Trees”
Like many cities around the world, Denver gets its drinking water from rivers and reservoirs, which in turn get their water from forests. Many of those forests, however, are in trouble – thanks to funding cuts, climate change, and a horde of opportunistic beetles. That puts the city’s water supply at risk as well, so Denver teamed up with the US Forest Service to funnel money it collects from water fees into forest restoration, all of which is packaged in a new PWS scheme to the tune of $33 million.

August 2010 WET:
“Climate Change to Threaten Access to Water”
According to a recent report, climate change will increase the risk of over-allocating future water supply across the United States. The report, based on research from scientists at Tetra Tech, Santa Clara University, and The Nature Conservancy, is a county-by-county analysis of water supply sustainability risk based on five criteria: 1) use of renewable water; 2) sustainable groundwater use; 3) susceptibility to drought; 4) growth in water demand; and 5) future increased need for water storage. Based on this assessment, nearly 1/3 of all U.S. counties will be at extreme or high risk of water supply sustainability by 2050— triple the number that would be at risk without climate change impacts. More than 70% of all counties will have at least moderate risk to water sustainability.

March 2010 WET:
“State of Biodiversity Markets”
The State of Biodiversity Markets report offers a region-by-region breakdown of 39 existing and 25 developing compensatory mitigation programs in North America, Latin America, Europe, Asia, and Africa, as well as an analysis of the unique legal framework within which each scheme is being implemented and the means of incentivizing private-sector investment.

“Circle of Blue 10 things you should know about water”
How much drinkable water is there in the world? How much water does an American, a European, an African use everyday? How many people lack even basic access to clean water? Circle of Blue, which provides consistently solid information, provided this list at the end of 2009.

January 2010 WET:
“Vilsack picks lucky few for Mississippi River Basin Initiative”;
In late November, Agriculture Secretary Tom Vilsack selected 41 watersheds in 12 states to participate in a new initiative to improve the water quality and overall health of the Mississippi River Basin.   The Mississippi River Basin Healthy Watersheds Initiative will provide $320 million in USDA financial assistance over the next four years for voluntary watershed projects.   The initiative will help producers implement conservation and management practices that prevent, control, and trap nutrient runoff from agricultural land.   USDA’s Natural Resources Conservation Service (NRCS) will manage the initiative.

“California groundwater reserves all dried out”
A new NASA report confirmed what water observers have feared for years: groundwater overdraft – pumping water at a faster rate than recharge – is occurring in California’s San Joaquin Valley at a rate higher than previously reported by the California Department of Water Resources.   Water pumping has been so extreme that NASA’s twin GRACE satellites can detect the changes in local gravity caused by water loss.   To make matters worse, these overdrafts are completely unreported, unmonitored, and unregulated.   While recent water legislation passed in Sacramento calls for some limited groundwater level measurements, it does not provide for comprehensive monitoring.

Here are the Stories from 2010 expected to remain Hot in 2011:

Stormwater:
Washington State On Track to Consider New Dollars for Stormwater Projects
Environmental advocates in Washington are gearing up for the 2011 legislative session, and finding a new funding source for stormwater projects is set to be a major priority in the coming year. The issue has a good deal of momentum behind it: polluted runoff is a major problem in the state, and the question of how to pay for mitigation and cleanup has been on the agenda for the last two years. Legislation that would have invested in low-impact development came very close to passing last year, and lawmakers approved a $50m ‘consolation prize’ when it failed. Legislators did, however, get behind a ban on the use of copper in vehicle brake pads, which is a significant source of water pollution. California followed suit a few months later and Oregon is considering a ban as well. (From the December 2010 WET)

Water-related risk for businesses and governments:
Bond Markets Turning a Blind Eye to Water Risk  
Rating agencies and investors are overlooking water scarcity risk in the municipal bond market at their own peril, according to a new report coauthored by Ceres, PWC, and Water Asset Management. The Ripple Effect: Water Risk in the Municipal Bond Market takes a comprehensive look at how water scarcity, climate change, and ever-growing demand for clean water, can lead to serious risk exposure for water and electric utilities, especially in the US Southwest and Southeast. (From the December 2010 WET)

Business Strategies for Water Risk Moving into the Mainstream
The Carbon Disclosure Project has released the results from its new Water Disclosure Project survey, compiling results from 150 of the world’s 500 largest companies reporting on their water use strategies and practices. Key findings include the high profile of water issues among surveyed companies: 89 per cent have already developed specific water policies, and 60 per cent have set performance targets. Also of note is the immediacy of water challenges facing companies: the majority said that timescales associated with water-related risks fall in the current or near term (one to five) years and 39 per cent reported already facing negative impacts related to water stress. (From the December 2010 WET)

SEC Calls for Attention to Water Risk in Corporate Reporting on Climate Change
The US Security and Exchange Commission’s (SEC) new guidance for including climate change risks in corporate disclosures includes a focus on water risks. Although corporate reporting related to climate change issues is often limited to energy and emissions data, the SEC’s guidance includes looking at exposure to impacts of climate change like water scarcity, and salt-water intrusion from rising sea levels. The new guidance may have a global impact in the form of a ‘ripple effect’ along a business’ supply chain, as firms subject to SEC regulation require similar reporting from their suppliers and distributors. However, this may also mean heavy reporting requirements for businesses – identifying and measuring water risks will be highly industry- and location-specific, and the concept of water risk is still relatively undeveloped and unstandardized. (From the October 2010 WET)

Water quality standards:
EPA Poised to Set First-Ever Limits on Nutrient Pollution in Florida Waters
The U.S. EPA is planning to impose limits on phosphorus and nitrogen in Florida waters marking the first federal standards for nutrient pollution in the waters of a state. The proposed action, developed with state environmental officials, was released for public comment back in mid-January, meeting a court ordered deadline in a case brought by five environmental groups. The standards would set a series of numeric limits on the amounts of phosphorus and nitrogen that would be allowed in Florida’s surface waters.(From the March 2010 WET)

Public, in comments, weighs pros and cons of TMDL for Bay
By November 8th, when the window for public comments closed on the pending TMDL for the Chesapeake Bay, the EPA had received about 8,000 comments. The majority – 90 per cent – were supportive of the TMDLs and plans for restoring the Bay, after decades of failed voluntary efforts. Common criticisms included the   high costs and rushed target of restoring the Bay by 2025, as well as questions about the EPA’s legal authority to implement the restoration plans. (From the December 2010 WET)
     
Water-climate connection:
Bringing Water to the Climate Change Agenda
In the leadup to the Copenhagen talks in 2009, water issues were removed completely from the negotiating text. Fast forward a year and support is surging for a renewed focus on the water-climate link, and particularly the importance of water in climate change adaptation planning.   Read more about the climate and water connection at Circle of Blue. (From the December 2010 WET)

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