Water Economics and Policy

Willingness to pay (WTP) for payments for environmental services (PES) can be temporarily reliable if contingent valuation (CV) studies are embedded in an accurate survey population, yield low measurement errors, and are based on a correct assumption of no change in sociodemographic factors affecting buyer preferences. These pre-conditions are assumed in PES schemes applying temporal reliability of WTP. This study tests these conditions in CV-PES studies from 2001, 2003, and 2011 in Lombok, Indonesia, by comparing them with a new CV-PES study in 2015. Our results show that the CV-PES studies would not meet the pre-conditions due to inclusion of non-PES buyers, potential measurement errors implied by a lack of validating information and high WTP estimate, and/or failure to test the condition of no change of socio-economic factors. Results contribute to identifying pragmatic challenges and lessons for applying temporal reliability of WTP to PES implementation.

This study was carried out to design an incentive payment for an ecosystem services (IPES) scheme in the Baitadi Town Water Supply and Sanitation Project of Nepal. The main intention behind the designing of the scheme was to develop strategy for equitable use of water resources and involve communities, watershed and water user, in the sustainable management of water resources. We administered household survey in both the watershed community and water users to elicit their preferences regarding water source management and drinking water supply. A discrete choice experiment was employed in the case of water users which showed that, for them, water quality and quantity are the most important attributes. The estimated annual willingness-to-pay of water users for doubling water availability is NPR 482,076 (USD 4,505) and for doubling the water quantity and the supply of clean water that can be drunk directly from the tap is NPR 1.18 million (USD 10,988). The results of consultations with stakeholders indicate that the construction of public toilets, the regularization of grazing, off-season vegetable farming and drinking water distribution in the upstream area may contribute to maintaining the quality of water while keeping the watershed community satisfied with regard to water-sharing. These activities require NPR 1.17 million (USD 10,987) in the first year and NPR 425,640 (USD 3,978) annually from the second year on. The estimated willingness-to-pay and cost of the watershed activities indicate that implementing IPES in the Baitadi Town Water Supply Project is financially feasible and socially acceptable. Our study recommends the integration of the IPES design into the project design phase in future drinking water scheme, the best option being its integration into the initial environmental examination at the time of project design.

This paper explores the design of a forestry-based payment for ecosystem services (PES) scheme, which improves stream water supply while simultaneously helping conserve forests and supporting livelihoods in communities of Uttarakhand, India. Under a PES arrangement, upstream communities reduce fuelwood harvesting to restore forest quality and improve stream flow in the downstream communities. Results suggest that such PES projects can play a crucial role in supporting forest conservation efforts and mitigating water scarcity in the region. For instance, PES-based payments required to meet the water needs of downstream communities can be three times lower than the costs of municipal water supply. Whereas, if communities do not receive any monetary incentives for reducing fuelwood harvesting, it results in a significant degradation of the forests in the long run. However, hydrological and ecological constraints can reduce the effectiveness of PES programs in the region. A high displacement of oak forests by the pine forests would lower the benefits from PES participation for the local communities. When the shifting species composition of forests also increases the failure risk of PES projects, optimal response requires further restricting fuelwood harvesting.

After years of attempting to address rising turbidity in its water supplies with engineering solutions, Vitória, the capital of the Brazilian state of Espírito Santo, is turning to watershed conservation. Degradation in the watershed of the Santa Maria da Vitória River, from which Vitória obtains almost 40% of its water supplies, has resulted in a significant increase in water treatment costs; investments in improved filtration have only managed to slow. To reduce erosion in the watershed, a program of Payments for Environmental Services (PES) is being implemented, initially in a micro-watershed that has been identified as contributing disproportionately to sediment loads. This paper estimates the impact of watershed degradation on Vitória’s water treatment costs and undertakes a cost–benefit analysis of the benefits of watershed conservation. These interventions will benefit both downstream water users, in the form of lower water treatment costs, and upstream landholders, in the form of higher income from farming activities and payments for conservation.

We review 15 forest watershed protection programs in the United States in which a local government agency or water provider collects payments from downstream service beneficiaries, such as water consumers, and pays upstream forest landowners for provision of watershed services. We describe the features of these Payments for Watershed Services (PWS) programs, focusing on funding sources, how the payment mechanisms work, and outcomes achieved. We also assess the extent to which the programs adhere to the economic principles that are associated with efficient or cost effective PWS schemes. In general, we find that payments in the programs do not closely reflect the marginal value of the service provided. Payments received by landowners mainly reflect the landowners’ opportunity costs. Fees paid by water consumers are set to yield revenue targets and/or reflect the avoided cost of additional water filtration and treatment. The programs appear to yield societal benefits, primarily through cost savings, but data from program outcomes is limited and more rigorous analysis of both the benefits and costs would be worthwhile.

Groundwater is a critical water supply around the world and is increasingly under threat from pumping that exceeds natural replenishment. California is taking on this challenge with the Sustainable Groundwater Management Act (SGMA) of 2014, which seeks to reliably manage groundwater to meet current and future water needs for the economy, communities and environment. Successful implementation of SGMA depends on the ability of local agencies to work with stakeholders to develop plans and implement projects that reduce groundwater use, increase recharge and efficiently allocate pumping. With more than 250 local agencies undertaking actions to address groundwater overdraft, California serves as a unique laboratory for testing new ways to achieve groundwater management. At the same time, economic tools are increasingly being utilized to secure or deliver water to the environment. For the past several years, The Nature Conservancy has been testing ways that economic tools can help achieve groundwater sustainability. This paper presents case studies that illustrate how two forms of Payment for Ecosystem Services (PES) — a groundwater market and a multi-benefit recharge incentive program — are being used in California to achieve groundwater sustainability to simultaneously meet the water needs of people and nature.