Download - Natural Infrastructure: Optional subhead would go here Whats the Bottom Line? Elena Irwin Professor, Department of Agricultural, Environmental and Development.

Natural Infrastructure:

Optional subhead would go here

What’s the Bottom Line?

Elena IrwinProfessor, Department of Agricultural, Environmental and

Development Economics

Water for the Americas TourFebruary 11, 2014

Columbus, OH

Incentives for Getting Businesses to Work for Water Sustainability

Department of Agricultural, Environmental, and Development Economics

The business case for sustainability: The world is changing


The business case for sustainability:

Declining Natural Resources

Renewables and nuclear power account for more than half of all new capacity predicted to be added worldwide through 2035



Climate change

Source: IPCC http://kiln.it/embeds/ipcc/sensitivity/



Increased water scarcity


The business case for sustainability: Growing ecological degradation



Increasing extreme weather events



Increasing environmental regulation

Source: US EPA http://www.epa.gov/oppt/greenengineering/pubs/whats_ge.html


Businesses are responding


Business acting alone won’t save the planet

• Increased sustainability actions by businesses often generates “co-benefits”

for society

• But the business case for sustainability does not consider all social costs

PRIVATE

PUBLIC

Revenues

BENEFITSCOSTS

Construction + O&M costs

Revenues

Financing

Net private benefits

Construction, O&M costs

Regulatory costs

Stormwater runoff

Urban heat island

Net public costs

CONVENTIONAL CHOICE(GRAY DEVELOPMENT)

A Problem of Incentives

NET PRIVATE BENEFITS ARE POSITIVE, BUT NET SOCIAL

BENEFITS ARE NEGATIVE

Financing


Regulatory costs

PRIVATE

PUBLIC

Stormwater runoff

Urban heat island

PRIVATE

PUBLIC

Revenues

Reduced runoff and warming

BENEFITSCOSTS BENEFITSCOSTSVS.

CO2 absorption

Habitat

Amenities

Avoided public costs

Net public

benefits of green vs. gray

Opportunity cost of forgoing gray

Added cost of greenNet cost of green vs.

gray


Revenues

Financing

Net private benefits


Regulatory costs

Stormwater runoff

Urban heat island

Net public costs

CONVENTIONAL CHOICE(GRAY DEVELOPMENT)

SUSTAINBLE ALTERNATIVE (GREEN DEVELOPMENT)

Revenues

PRIVATE

PUBLIC

CO2 absorption

Habitat

Amenities

Reduced runoff & heat island

Net public

benefits of green vs. gray

Net private costs of green

vs. gray

Stormwater runoffStormwater runoff

Urban heat island

BENEFITSCOSTS

NET SOCIAL BENEFITS ARE POSITIVE, BUT NET PRIVATE BENEFITS ARE

NEGATIVE

GREEN VS. GRAY

Costs

BENEFITSCOSTS

GRAY DEVELOPMENT

BENEFITSCOSTS

GREEN DEVELOPMENT


Revenues

PRIVATE

Costs

PRIVATE

Costs Revenues

Net private costs of green vs. gray

Private market does not internalize public costs

Net private benefits of green are negativeNo private

incentive for green

development


Stormwater runoff

Urban heat island

Revenues

PRIVATE

PUBLIC

PRIVATE

PUBLIC

CO2 absorption

Habitat

Amenities

Increased private costs of gray

Revenues

BENEFITSCOSTS BENEFITSCOSTS

IMPACT FEE IMPACT FEE = STICK

Stormwater runoff

Urban heat island

Net private costs of gray

OPTION #1: POLLUTER PAYS Increase private costs of gray

development

GRAY DEVELOPMENT GREEN DEVELOPMENT

CostsCosts


Revenues

PRIVATE

PUBLIC

PRIVATE

PUBLIC

CO2 absorption

Habitat

Amenities

Revenues


PAYMENT

Increased private benefits of green

Stormwater runoff

Urban heat island

PAYMENT = CARROT

Stormwater runoff

Urban heat island

Net private benefits of green

OPTION #2: PAYMENT FOR ECOSYSTEM SERVICES

Increase private benefits of green development


CostsCosts

Public Cost of

Payment

Revenues

PRIVATE

PUBLIC

Costs

PRIVATE

PUBLIC

CO2 absorption

Habitat

Amenities

Revenues


PAYMENT

IMPACT FEE

Stormwater runoff

Urban heat island

Public Revenues from Fee

Public Cost of

Payment

Stormwater runoff

Urban heat island

Net private costs of gray

Net private benefits of green

OPTIONS #1 & 2: Stick and carrot together


Costs

Source: EPA New England, “Funding Stormwater Programs,” EPA 90-F-09-004 April 2009.

Municipal stormwater management: Fees and green infrastructure credits

Example: City of Philadelphia implemented impervious-based stormwater billing in 2010

City of Philadelphia Stormwater Fees

• Gross Area charge: $0.526/mo per 500 sq ft

• Impervious Area charge: $4.145/mo per 500 sq ft

• Credits offered for management of first inch of stormwater runoff using green infrastructure (porous pavement, green roof, downspout disconnect, trees) avoided public costs of $170 million

What is a stormwater utility?

A stormwater utility, operating much like an electric or water utility, may collect fees related to the control and treatment of stormwater that can be used to fund a municipal stormwater management program.


Stormwater runoff

Urban heat island

Revenues

PRIVATE

PUBLIC

PRIVATE

PUBLIC

CO2 absorption

Habitat

Amenities

Revenues


Lower cost financing, public and non-profit partnerships

Stormwater runoff

Urban heat island


CostsCosts

Net private benefits of gray

OPTION #3: MANAGING BEYOND THE FENCE LINE

Reduce private costs of green development

Net private benefits of

green


Water Synergy Project in Louisiana (US Business Council on Sustainable Development)

• Bringing watershed users from industry and public sector together to develop sustainable water management practices

• Water reuse and transfer strategies

• Constructed and restored wetlands

• Federal funding for regional stormwater management

• Innovative financing through PACE


Water quality trading programs• Trading

programs allow facilities to

purchase pollution

reductions from another lower-

cost source• Requires

extensive public-private

partnerships

Example: The Great Miami River Watershed Water Quality Credit Trading program facilitates wastewater treatment facilities to purchase

credits from farmers who reduce pollutant runoff into rivers and streams.


Greif: PackH2O water backpack• Funding to develop pack from non-profit foundations;

worked with Battelle on design

• Partnerships with many organizations to manufacture and distribute pack, including

•Operation Blessing International

•Habitat for Humanity International

•Partners for Care

•CxCatalysts & CEMACO

•Partners In Health• 2013 People's Design Award at the National Design

Awards

• To date more than 100,000 H20packs have been distributed in 21 countries across five continents


Managing beyond the fence line is especially important for water• Water and watersheds are

common pool resources: everyone uses their services, but many

services are unpriced or underpriced

• Many competing demands determined by local uses, including

business, agriculture, municipal, residential, transport, recreation• Businesses acting alone do not

have the right incentives• Government’s multiple roles: stick,

carrot and partner


Elena IrwinProfessor, Department of Agricultural,

Environmental and Development Economics

Faculty leader,Environment, Economy, Development and

Sustainability (EEDS) major at OSU

[email protected]

mailto:[email protected]