The issue brief provides an overview of how businesses and water utilities in the United States and Latin America are pursuing upstream forest conservation as a cost-effective means of ensuring clean water supplies. It also suggests how many of these approaches could be applicable in the southern United States.
- John Talberth, Senior Economist
The forested watersheds of the southern United States provide a number of benefits—including water flow regulation, flood control, water purification, erosion control, and freshwater supply—to the region’s citizens, communities, and businesses.
The loss and degradation of forests can reduce their ability to provide these watershed-related ecosystem services.
Payments for watershed services provide landowners financial incentives to conserve, sustainably manage, and/or restore forests specifically to provide one or more watershed-related ecosystem services. Such payments typically involve downstream beneficiaries paying upstream forest owners or forest managers.
There are three general types of payments for watershed services: (1) voluntary payments by downstream entities to upstream landowners to reduce the costs of doing business, (2) payments made to minimize an entity’s cost of meeting a regulation, and (3) payments made to generate public benefits. A number of instances of each type of payment have been piloted in the United States, Latin America, and elsewhere.
Many payments for watershed services share a common trait: they are investments in “green infrastructure” instead of “gray infrastructure.” In other words, they are investments in forests and natural, open space instead of in human-engineered solutions to address water quantity or quality problems. In many instances, investments in green infrastructure can be more cost effective than investments in gray infrastructure.
Entities that may have a business case for making a payment for watershed services include beverage companies, power companies with hydroelectric facilities, manufacturers that rely on clean freshwater supplies for processing, housing developers, public and private wastewater treatment plants, city and county governments, drinking water utilities, and public departments of transportation, among others.
These entities can pursue a number of steps to capture the potential benefits of payments for watershed services, including identifying those forests most responsible for their clean water supplies, conducting economic analyses of green versus gray infrastructure, and exploring public/private financing partnerships.
Upstream landowners can pursue a number of steps to advance— and ultimately benefit from—payments for watershed services, including developing an understanding of the watershed-related ecosystem services their forests provide, actively looking for emerging payment opportunities, and collaborating with other landowners to achieve economies of scale when engaging beneficiaries of the services their forests provide.
This issue brief is intended as an introductory resource primarily for entities that depend upon stable supplies of clean freshwater in the southern United States and are looking for cost-effective approaches to sustain this supply. This brief also provides information to southern landowners interested in potential revenue streams generated by conservation and sustainable management of forests.