What’s the Bottom Line?

1. What’s the Bottom Line? Natural Infrastructure: Incentives for Getting Businesses to Work for Water Sustainability Elena Irwin Professor, Department of Agricultural, Environmental and Development Economics Optional subhead would go here Water for the Americas Tour February 11, 2014 Columbus, OH

2. Department of Agricultural, Environmental, and Development Economics The business case for sustainability: The world is changing

3. Department of Agricultural, Environmental, and Development Economics 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

4. Department of Agricultural, Environmental, and Development Economics The business case for sustainability: Climate change Source: IPCC http://kiln.it/embeds/ipcc/sensitivity/

5. Department of Agricultural, Environmental, and Development Economics The business case for sustainability: Increased water scarcity

6. Department of Agricultural, Environmental, and Development Economics The business case for sustainability:Growing ecological degradation

7. Department of Agricultural, Environmental, and Development Economics The business case for sustainability: Increasing extreme weather events

8. Department of Agricultural, Environmental, and Development Economics The business case for sustainability: Increasing environmental regulation Source: US EPA http://www.epa.gov/oppt/greenengineering/pubs/whats_ge.html

9. Department of Agricultural, Environmental, and Development Economics Businesses are responding

10. Department of Agricultural, Environmental, and Development Economics 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

11. CONVENTIONAL CHOICE (GRAY DEVELOPMENT) COSTS BENEFITS Net private benefits PRIVATE Financing NET PRIVATE BENEFITS ARE POSITIVE, BUT NET SOCIAL BENEFITS ARE NEGATIVE Construction, O&M costs Construction + O&M costs Revenues Revenues Regulatory costs PUBLIC Stormwater runoff Net public costs A Problem of Incentives Urban heat island

12. SUSTAINBLE ALTERNATIVE (GREEN DEVELOPMENT) CONVENTIONAL CHOICE (GRAY DEVELOPMENT) VS. COSTS BENEFITS COSTS BENEFITS Net cost of green vs. gray Added cost of green Opportunity cost of forgoing gray Net private benefits PRIVATE PRIVATE Financing Financing Net public benefits of green vs. gray Construction, O&M costs Construction + O&M costs Revenues Construction, O&M costs Revenues Regulatory costs Regulatory costs Stormwater runoff CO2 absorption PUBLIC PUBLIC Stormwater runoff Net public costs Habitat Urban heat island Urban heat island Amenities Reduced runoff and warming Avoided public costs

13. GREEN VS. GRAY COSTS BENEFITS Net private costs of green vs. gray PRIVATE Net public benefits of green vs. gray Revenues Costs NET SOCIAL BENEFITS ARE POSITIVE, BUT NET PRIVATE BENEFITS ARE NEGATIVE Stormwater runoff CO2 absorption PUBLIC Stormwater runoff Habitat Urban heat island Amenities Reduced runoff & heat island

14. GREEN DEVELOPMENT GRAY DEVELOPMENT COSTS BENEFITS COSTS BENEFITS Net private benefits of green are negative No private incentive for green development Net private costs of green vs. gray PRIVATE PRIVATE Construction + O&M costs Costs Costs Revenues Revenues Private market does not internalize public costs

15. GREEN DEVELOPMENT GRAY DEVELOPMENT COSTS BENEFITS COSTS BENEFITS Increased private costs of gray Net private costs of gray IMPACT FEE IMPACT FEE = STICK PRIVATE PRIVATE Construction + O&M costs Costs Costs Revenues Revenues Stormwater runoff CO2 absorption PUBLIC PUBLIC Stormwater runoff Habitat Urban heat island Amenities Urban heat island OPTION #1: POLLUTER PAYS Increase private costs of gray development

16. GREEN DEVELOPMENT GRAY DEVELOPMENT COSTS BENEFITS COSTS BENEFITS Increased private benefits of green Net private benefits of green PAYMENT PRIVATE PRIVATE PAYMENT = CARROT Construction + O&M costs Costs Costs Revenues Revenues Stormwater runoff CO2 absorption PUBLIC PUBLIC Stormwater runoff Habitat Urban heat island OPTION #2: PAYMENT FOR ECOSYSTEM SERVICES Increase private benefits of green development Amenities Urban heat island Public Cost of Payment

17. GREEN DEVELOPMENT GRAY DEVELOPMENT COSTS BENEFITS COSTS BENEFITS Net private benefits of green Net private costs of gray PAYMENT IMPACT FEE PRIVATE PRIVATE Costs Costs Revenues Revenues Stormwater runoff CO2 absorption PUBLIC PUBLIC Stormwater runoff Public Revenues from Fee Habitat Urban heat island Amenities Urban heat island Public Cost of Payment OPTIONS #1 & 2: Stick and carrot together

18. Municipal stormwater management: Fees and green infrastructure credits Example: City of Philadelphia implemented impervious-based stormwater billing in 2010 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. • City of Philadelphia Stormwater Fees • Gross Area charge: $0.526/mo per 500 sqft • Impervious Area charge: $4.145/mo per 500 sqft • 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 Source: EPA New England, “Funding Stormwater Programs,” EPA 90-F-09-004 April 2009.

19. GREEN DEVELOPMENT GRAY DEVELOPMENT COSTS BENEFITS COSTS BENEFITS Lower cost financing, public and non-profit partnerships Net private benefits of gray PRIVATE PRIVATE Net private benefits of green Construction + O&M costs Costs Revenues Revenues Costs Stormwater runoff CO2 absorption PUBLIC PUBLIC Stormwater runoff OPTION #3: MANAGING BEYOND THE FENCE LINE Reduce private costs of green development Habitat Urban heat island Amenities Urban heat island

20. Department of Agricultural, Environmental, and Development Economics Water Synergy Project in Louisiana (US Business Council on Sustainable Development) • Water reuse and transfer strategies • Constructed and restored wetlands • Federal funding for regional stormwatermanagement • Innovative financing through PACE Bringing watershed users from industry and public sector together to develop sustainable water management practices

21. Department of Agricultural, Environmental, and Development Economics 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.

22. Department of Agricultural, Environmental, and Development Economics 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

23. Department of Agricultural, Environmental, and Development Economics 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

24. Department of Agricultural, Environmental, and Development Economics Elena Irwin Professor, Department of Agricultural, Environmental and Development Economics Faculty leader, Environment, Economy, Development and Sustainability (EEDS) major at OSU irwin.78@osu.edu