Natural Infrastructure: Optional subhead would go here Whats the Bottom Line? Elena Irwin Professor, Department of Agricultural, Environmental and Development Economics Water for the Americas Tour February 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

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

Department of Agricultural, Environmental, and Development Economics The business case for sustainability: Climate change Source: IPCC

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

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

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

Department of Agricultural, Environmental, and Development Economics The business case for sustainability: Increasing environmental regulation Source: US EPA

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

Department of Agricultural, Environmental, and Development Economics Business acting alone wont 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

PRIVATEPRIVATE PUBLICPUBLIC Revenues BENEFITS COSTS 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 Construction, O&M costs Regulatory costs PRIVATEPRIVATE PUBLICPUBLIC Stormwater runoff Urban heat island PRIVATEPRIVATE PUBLICPUBLIC Revenues Reduced runoff and warming BENEFITS COSTS BENEFITS COSTS VS. CO 2 absorption Habitat Amenities Avoided public costs Net public benefits of green vs. gray Opportunity cost of forgoing gray Added cost of green Net cost of green vs. gray 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) SUSTAINBLE ALTERNATIVE (GREEN DEVELOPMENT)

Revenues PRIVATEPRIVATE PUBLICPUBLIC CO 2 absorption Habitat Amenities Reduced runoff & heat island Net public benefits of green vs. gray Net private costs of green vs. gray Stormwater runoff Urban heat island BENEFITS COSTS NET SOCIAL BENEFITS ARE POSITIVE, BUT NET PRIVATE BENEFITS ARE NEGATIVE GREEN VS. GRAY Costs

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

Construction + O&M costs Stormwater runoff Urban heat island Revenues PRIVATEPRIVATE PUBLICPUBLIC PRIVATEPRIVATE PUBLICPUBLIC CO 2 absorption Habitat Amenities Increased private costs of gray Revenues BENEFITS COSTS BENEFITS COSTS 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 Costs

Construction + O&M costs Revenues PRIVATEPRIVATE PUBLICPUBLIC PRIVATEPRIVATE PUBLICPUBLIC CO 2 absorption Habitat Amenities Revenues BENEFITS COSTS BENEFITS COSTS 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 GRAY DEVELOPMENT GREEN DEVELOPMENT Costs Public Cost of Payment

Revenues PRIVATEPRIVATE PUBLICPUBLIC Costs PRIVATEPRIVATE PUBLICPUBLIC CO 2 absorption Habitat Amenities Revenues BENEFITS COSTS BENEFITS COSTS 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 GRAY DEVELOPMENT GREEN DEVELOPMENT Costs

Source: EPA New England, Funding Stormwater Programs, EPA 90-F April 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.

Dow TNC Collaboration Dow Nature Conservancy collaboration: Air pollution mitigation in Freeport, TX Houston-Galveston-area is non-attainment area for ground-level ozone Tightening emissions limits and fines Dows total compliance have costs dramatically increased 1,000 acre pilot project -- is reforestation part of a cost- effective abatement strategy? Estimate that tons No x removed over 30 years Cost competitive Carbon credits offset emissions costs

Construction + O&M costs Stormwater runoff Urban heat island Revenues PRIVATEPRIVATE PUBLICPUBLIC PRIVATEPRIVATE PUBLICPUBLIC CO 2 absorption Habitat Amenities Revenues BENEFITS COSTS BENEFITS COSTS Lower cost financing, public and non-profit partnerships Stormwater runoff Urban heat island GRAY DEVELOPMENT GREEN DEVELOPMENT Costs Net private benefits of gray OPTION #3: MANAGING BEYOND THE FENCE LINE Reduce private costs of green development Net private benefits of green

Department of Agricultural, Environmental, and Development Economics 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

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.

Department of Agricultural, Environmental, and Development Economics Greif: PackH 2 O 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

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 Governments multiple roles: stick, carrot and partner

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