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Economic Currents

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Financing Watershed Conservation

Posted August 29, 2012 | Categories: Hawaii's Environment, Blog, Project Environment, Water Resources

In November 2011, Governor Abercrombie and State officials launched a watershed protection plan entitled, “The Rain Follows the Forest”. The initiative’s goal is to double the current level of watershed protection – approximately 10% of priority watershed areas throughout Hawai‘i are currently protected – over the next ten years at an estimated cost of $11 million per year. Restoration actions would include construction and maintenance of fencing, feral ungulate removal, invasive plant control, and reforestation of native species.

The projected annual cost of $11 million is a large step up from the $1.25 million that was allocated to the 11 watershed partnerships across the State in 2011. However, a study commissioned by the State Department of Land and Natural Resources (DLNR) and undertaken by OmniTrak Group, Inc. in October 2011 found that 78% of survey respondents from a sample of Hawai‘i residents were supportive of such an increase. The result seems to suggest that the public recognizes the need to protect the source of our freshwater and the benefits such actions would provide.

UHERO research was prominently featured in DLNR’s legistative initiative. The DLNR Fact Sheet  notes that one of the most measurable benefits of watershed protection is enhanced groundwater recharge, citing a 2004 UHERO study (Pitafi and Roumasset) showing that a mere 1% loss in recharge in the Ko‘olau Mountains could cost O‘ahu $42 million in present value. The report also cited another UHERO study (Roumasset et al.) that estimated that the total net present value of ecosystem services provided by the Ko‘olau forests is between $7.4 and $14 billion. When considering the fact that forests are also important for water quality, climate control, biodiversity, and cultural, aesthetic, recreational, and commercial values; the benefit-cost ratio of watershed conservation investment is extremely high -- especially compared to physical infrastructure projects being pursued by the State and local governments.

As of May 2012, the State Legislature has partially funded the watershed protection initiative with $2.5 million in Capital Improvement Projects (CIP) funds and $2.5 million in special funds. Governor Abercrombie’s office again acknowledged UHERO’s research in the announcement of the State watershed action plan, which calls for increased funding in future years. Bond financing watershed conservation through the CIP program is an important precedent. Like building roads and schools for the future, investing in natural capital such as our watersheds increases net present value by ensuring that valuable ecosystem services are sustained in the long run.

In the future, DLNR will be seeking to put the initiative on more sustainable financial footing and plans to work with UHERO on examining alternative methods of finance. One possible item for future consideration is the extent to which watershed investment should be paid for by direct beneficiaries of the additional captured recharge. Much of the benefits generated would accrue to future water users, who will face higher water prices due to rising costs and increased water scarcity. A recent UHERO study (Roumasset and Wada) outlined a method for determining the benefits of watershed conservation by year and constructing a tax structure to pay off the requisite bond, based on the proportion of benefits received by each generation. One way to implement the tax is an appropriate adjustment of the rate schedule for water use.

--James Roumasset and Christopher Wada

Pitafi, B., J. Roumasset. 2004. Watershed Conservation and Efficient Groundwater Pricing. Prepared for the Agricultural and Applied Economics Association Annual meeting, Denver, CO, 2004. University of Hawai`i at Mānoa.

Roumasset, J., J.B. Kaiser, N. Krause, D. Mecham and J. Wooley. 1998. Environmental Valuation and the Hawaiian Economy. University of Hawai‘i Economic Research Organization.

Roumasset, J., C. Wada. 2010. A dynamic approach to the pricing and finance of interlinked ecosystem services: Watershed conservation and groundwater management. UHERO Working Paper Series #2010-12.

 

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