Economic planning for water resources development, at basin or national scales, needs to account for ecosystem services. With the costs and benefits of ecosystem services valued, a business case can be made for investing in ecosystems and watersheds as natural infrastructure, as part of sustainable financing for river basin management.
• Treat ecosystems as an integral part of the water infrastructure necessary for development, both at basin level and in national accounts. Require valuation of the costs and benefits of ecosystem services in investment assessment, including for dams, storage, irrigation and drainage. Base economic planning and investment decisions on analysis of costs and benefits for the full suite of both natural and built infrastructure options.
• The returns on investment for river basin management should be clear and quantified to inform better decision making. Apply economic tools to create a business case in which the dividends from investing in river basin management account for the benefits of ecosystems and water security for livelihoods and economic development.
• Implementation of sustainable water resources management benefits from economic incentives. Use economic incentives to encourage changes in behaviour needed to implement IWRM. Reward those who manage watersheds sustainably, including by using payments for ecosystem services where appropriate stakeholder participation and water governance is in place.
• Financing for water resources management must be sustainable. Use a sound business case to mobilise innovative financing of water resources management, from governments, the private sector and water users. Make financing available to local initiatives for watershed management through decentralised funds and credit schemes that integrate clean and adequate water for all, ecosystem services, livelihoods and economic development.
Clean and regular water supplies are among the most basic human needs, as well as being core to most industries and to food and energy security. Each year, hundreds of billions of dollars are invested in the equipment and facilities that are required to abstract, store, treat and distribute water. Such investments, however, have paid scant attention to some of the most important, and productive, components of water infrastructure: these are the ecosystems – wetlands, forests, grasslands and other natural habitats – that provide a wide array of services to maintain water supplies, uphold water quality and guard against water-related hazards such as pollution, storms, floods and droughts.
Just like built infrastructure, natural infrastructure provided by ecosystems in healthy watersheds is a valuable part of the stock of facilities, services and equipment needed to ensure water security for poverty reduction and economic growth.
The key to investing in ecosystem services as natural water infrastructure is understanding their value. Economic valuations of ecosystems are being made increasingly using tried and tested tools for analysis. With ecosystem values in hand, decision makers can then weigh up the costs and benefits of alternate choices for water infrastructure development and operation, with a more complete picture of the likely impacts on sustainable development.
Performing ecosystem valuations, especially in ways that encourage whole communities to participate, empowers all stakeholders. Better informed decisions can be made and consensus improved for initiatives that sustain both the environment and livelihoods.
With knowledge gained from ecosystem valuations, priority can be given to projects that combine investment in natural and built infrastructure. Development outcomes will be more sustainable and climate resilient as a result. Incorporating investment in ecosystems into water infrastructure development will be a fundamental building block of the future green economy.
Evidence for action
- Count ecosystems as water infrastructure
- Include ecosystem valuations in water investment decisions
- Create economic incentives for implementing sustainable basin management
- Mobilise innovative financing for water resource management
Examples from the field
To protect its water supply, a utility company in Costa Rica determined that paying incentives to landowners to manage their forests sustainably would be more cost effective than building a filtration plant. Domestic users, also shareholders in the company, pay a small monthly tariff and large bottling companies finance 55% of the costs. Landowners now receive an annual fee to protect their forests, ensuring good water quality downstream.
In Botswana’s Okavango Delta, tourism businesses and local communities compete for use of the Delta’s natural wealth. An economic valuation of the Delta established its direct, indirect and intrinsic values, and showed that for everyone to benefit, the ecosystem had to function at its optimum. Knowing the value of resources helped stakeholders form a sustainable management plan that protects income and conserves the Delta for the future.
Population pressures on the Volta River forced villagers to move closer to the riverbank, increasing pollution and erosion. Planting trees in strip layers stabilized the riverbanks, supplied a steady source of firewood and provided a small income from selling fruit. Even small incentives like these can make a difference. People are now taking ownership of the sustainable management plan, improving the health of the river.