Balancing water needs: the experience of the IUCN Water and Nature Initiative Danièle Perrot-Maître Seminar on “Ecosystems as Water Suppliers” UNECE-BUWAL, Geneva, 13-14 December 2004 Life is about making decisions and evaluating trade offs. This is done through understanding what we gain what we give up with each choice, that is the benefits and the costs associated with each possible choice.

The Water and Nature Initiative: A Learning Initiative GOAL :To improve watershed ecosystems health and livelihoods PURPOSE: To learn and demonstrate how to apply the ecosystem approach into river basin planning and management HOW TO ACHIEVE THIS? Governance and Law Participation and Empowerment Economics and Finance Information and Knowledge Learning and Communication

The Water and Nature Initiative in Figures 5-year (2001 - 2006) US$ 80 million budget 80 partner organisations 30 projects 30 countries 10 river basins

The Workspace (www.waterandnature.org)

The Tools CHANGE-Adapting to climate change FLOW - The essentials of environmental flows VALUE-Counting ecosystems as water infrastructure

What is an environmental flow? Environmental flow is the water regime provided within a river, wetland or coastal zone to maintain ecosystems and their benefits where there are competing water uses and where flows are regulated. The outcome is an improved management regime that guarantees the longevity of the system and finds the optimal balance between the various uses. Source: FLOW, The Essentials of Environmental Flows, IUCN-WANI, 2003

How to establish environmental flows ? Define water requirements (defining objective, selecting trade offs scenarios and EF method) Modify water infrastructure Finance Create a policy and legal framework Generate political momentum Build capacity for design and implementation

Applying environmental flow in the Water and Nature Initiative Toolkit “FLOW” Training, field application and testing of toolkits in 4 regions: Tacana riverbasin, Guatemala, Mexico. allocation Pangani River basin, Tanzania and Kenya: water pricing Huong River Basin, Vietnam: importance of wetlands for shrimp aquaculture and local livelihoods Volta River Basin, Ghana and Burkina Faso Develop case studies and lessons learned Building a global and regional community of practice

What is the economic value of ecosystems? Total economic value of ecosystems Non use Use Existence values The intrinsic value of resources and landscapes, irrespective of its use such as cultural, aesthetic, bequest significance, etc. Direct values Outputs that can be consumed directly, such as fish, medicines, wild foods, recreation, etc. Indirect values Ecological services, such as catchment protection, flood control, carbon sequestration, climatic control, etc. Option values The premium placed on maintaining resources and landscapes for future possible direct and indirect uses, some of which may not be known now. Economic valuation undertaken so that value is expressed in monetary units which can then be compared to other options

Economic value of ecosystems: what does it tell us? How much does an ecosystem contribute to economic activity or society? Ex. forests in Med countries provide at least US$50 annually per capita. On average forest benefits in the region amount to about 1 percent of GDP. Indirect use value such as watershed protection contributes about 35% of total estimated value. Or: Wild forest-based pollinators increased coffee yields by 20% on farms located within 1 km of forest in Costa Rica and in 2002-03, pollination services from two forest fragments (46 and 111 ha) translated into about US$60,000 per year for one study farm in Costa Rica. What would be the benefits and costs of an intervention that alters the ecosystem (conservation investment, development project, regulation or incentive)? How are costs and benefits of a change in ecosystem distributed? How to make conservation financially sustainable? VALUE IS ABOUT BENEFITS AND COSTS Does not mean only goods and services that directly generate monetary benefits are taken into account. Quite the contrary. Much of the work in envtal eco focuses on goods and services that do not enter markets In first case, raising awareness and guide overall investment strategy but needs more detailed analysis to assess specific interventions. Need to be careful interpreting the information (scale issue and observed prices no longer hold at large scales, underestimation of non use values, estimates will change as ecosystem management changes over time). Ideally need multi year estimates of ecosystem services values 2. Need to estimate the change in physical flow of benefits as a result of intervention often more difficult than estimating total flows. Need to compare a site with and withoug intervention at same point in time, not a before and after study of the same site as many other variables may have changed. 3. Important because can affect how ecosystem is managed, enforcement and sustainability and socially acceptability of intervention, and compensaiton mechanisms, target poverty reduction interventions. For ex protected area in Madagascar provides high benefits to national and internaitonal community and local tourism industry but the cost is borne by poor groups near the park who are barred from using the protected area for agriculture, collection of NFTP. 4. Valuation can show that it is worth allocating more budget to ecosystem protection/management. Can also help quantifying benefits, identifying beneficiaries and develop innovative financing mechanisms based on this info (entrance fees, user fees, PES for water,, biodiv Can these values actually make a difference to land use decisions, water allocation and pricing, river-basin planning, infrastructure development, investment appraisals and financial flows, and so on 3rd and 4th points important because set the basis to develop payments/compensation scheme (who bears the cost) and financing mechanisms (who should pay). Questions look at same set of data but from a different perspective (different sub set, changes over time vs change at one point in time).

Ecosystem valuation results can provide valuable input into many types of water management decisions Investing in infrastructure development (design, management, investment appraisal) taking into account the cost of ecosystem maintenance Allocating water to various economic users including the ecosystem Land use planning: investing in ecosystems for water supply and quality Accounting for cost of ecosystems protection in water prices and price of water-based products Designing incentives mechanisms such as payments for ecosystem services (and removing inadequate incentives) Designing new financing mechanisms Basically the environment should be factored out in CBA

Applying ecosystem valuation in the Water and Nature Initiative Toolkit “VALUE” Training and field application and testing of toolkits in 5 regions: Costa Rica: hydropower development and public budget allocation Mekong: livelihood impacts and co management Huong River Basin, Vietnam: importance of wetlands for shrimp aquaculture and local livelihoods Sri Lanka, Kola Oya Basin: investment decision for irrigation, water supply and sanitation infrastructure Okavango Delta, Botswana: livelihoods impacts Pangani River basin, Tanzania and Kenya: water pricing Case studies and lessons learned Building a global and regional community of practice

Lessons and challenges of ecosystem valuation Most published studies focus on the direct use values of marketed products Non-use values (existence values) are even harder to capture, due to high uncertainty Economic valuation handles very large scale and long term problems rather poorly (analysis less robust as scale increases and role of discounting increasingly determinant) Valuation runs into trouble when environmental change is irreversible or when resources have no acceptable substitutes Economic valuation not always useful for managers and policy makers because Conducted as snap-shot rather than with comprehensive time series Total valuation studies say nothing about values of marginal changes linked to realistic alternatives Ecosystem services are rarely valued or unreliably valued, due to poor data on biophysical relationships Non eco approaches such as setting Safe Minimum Standard may be more adapted to situations where changes are irreversible or when it is difficult to conduct eco valuation (non use)

Watershed services: supply and demand Supply of services: Upstream land uses affect the Quantity, Quality, and Timing of water flows Demand for services: Possible downstream beneficiaries: Domestic water use Irrigated agriculture Hydroelectric power Fisheries Recreation Downstream ecosystems Source: World Bank 2003

Applying ecosystem valuation to payment for ecosystem service: simple in theory Conservation without payment Minimum payment Maximum payment Conservation with payment for service Payment Benefits to producers Costs to offsite populations Conventional resource use Incentive because payment compensate opportunity cost of conservation for private land owner. Resource users are paid to « grow » water by altering their land use or behaviour. Beneficiaries from ecosystem services compensate resource users for the adoption of production practices compatible with specific ecosystem services Steps in market creation Define what to purchase or sell Identify potential buyers Identify potential sellers Payment mechanism (price, contract, intermediaries) Enabling institutions (property rights, monitoring and enforcement) Need to know precisely what is the service being purchased Introduce WTP and WTA concepts Source: World Bank 2002

In practice not so simple… complex biophysical linkages (Brand 2003)

In practice still not so simple…valuing effects of change in ecosystem conditions on agricultural production

Ecosystem valuation in practice An example: Application to payments for watershed protection US$10-42 per ha per year in Costa Rica US$100 per acre per year in the USA (Catskills case) US$230 per ha per year in France (Vittel case) $AUD 85/ha/yr for forest conservation or $AUD 17 per million liters of transpired water in Australia (New South Wales) Vittel program is developed under the assumption that an improvement in farming activities will be sufficient to restore water quality to desired levels . Based on the assumption that one hectare of well managed pasture produces an estimated 3,000 m3 of drinkable water per year, the study concluded that the program was economically justifiable Co-benefits can be important also: (plus discussion of different ways to use eco valuation results to calculate compensation) Land tenure security Social development Biodiversity and other environmental benefits

Putting IWRM in practice: a balancing act….