Monetizing Cost Savings for Water and Nature Based Solutions

About

Overview
The idea leverages a “pay-for-success” and similar models to monetize water conservation, efficiency, and nature-based solutions, creating incentives and revenue streams in areas where municipal entities, small agricultural producers, and water users often lack the necessary financial resources to undertake water security improvements.

The Problem
Although water scarcity is a global challenge, it’s having the greatest impact on developing nations. Water projects of all kinds, from irrigation and conservation to climate change adaptation, are largely underserved by private capital, due to the lack of stable revenue to secure debt and offer investors a reasonable rate of return. This is often exacerbated by issues related to water loss and retention and revenue losses. Legal and regulatory barriers are additional constraints.

The Solution
Pay-for-success and related approaches have been effectively deployed for energy, but rarely have these approaches been adopted for water. This financial instrument and accompanying legal mechanism would monetize cost savings through the implementation of water conservation practices, improvements in infrastructure, sustainable agriculture, and nature-based solutions, such as watersheds and aquifers. Savings from reduced water use, lower water treatment and maintenance costs, landscape improvements, and reduced electricity usage represent potential ways to fund a model that rewards utilities. Urban consumers would also benefit from increased water availability.

The initial pilot project would take place in Guanajuato, Mexico, where agriculture accounts for 80% of water usage and there is ample opportunity for water conservation and infrastructure improvements. For example, 60% of the total water produced is lost due to inefficient practices.

Target Impact
Based on improved water efficiency and related improvements, preliminary estimates suggest a monetized value of up to $1 billion in savings annually. Indirect benefits, which are more difficult to quantify, could include greater water availability, improved water security, higher crop yields and additional agricultural exports.

Featured photo by Marizilda Cruppe/ WRI Brasil.