verde river yellow wild flowersA growing number of voluntary strategies for participation in ecosystem service markets have been gaining in popularity and effectiveness. These range from voluntary markets for regulating carbon emissions and achieving carbon sequestration to markets for water and biodiversity. They often take the form of tailored, flexible, and negotiated transactions often referred to as payments for ecosystem services (PES) programs or, in the specific case of securing watershed services, payments for watershed services (PWS) programs.

“Payments for ecosystem services” has been defined in an updated analysis by Sven Wunder as “voluntary transactions between service users and service providers that are conditional on agreed rules of natural resource management for generating off-site services.” PES serves as something of an umbrella term to capture a host of economic transactions or arrangements that do not rely upon formal markets (such as compliance markets for mitigation), but which are implemented to incentivize conservation of ecosystem services. These arrangements can be structured in myriad ways, may involve direct public payments or private payments for services provided, or may come in the form of tax incentives, certification programs, or cap-and-trade schemes.

One of the most well-known PES programs is the USDA Conservation Reserve Program under the U.S. Farm Bill, where farmers are paid to remove ecologically sensitive agricultural lands from production and manage them for a specified term – usually 10 to 15 years – for their environmental values, such as wildlife habitat, reduction of soil erosion, or improved water quality.

PWS is a subset of PES structures where watershed protection activities are compensated by the beneficiaries of those services. The basic premise of a PWS program involves landowners or land managers that agree to adopt a range of management activities, which will result in improved or sustained “watershed services,” in exchange for cash payments or other financial incentives that are paid by those who benefit from the watershed services. Participants in PWS programs include sellers of watershed services (typically farmers, ranchers, or other large-scale landowners), and buyers of those services (often government entities, utilities, NGOs, corporations, or investors). Intermediaries that facilitate the market in ecosystem services and match potential buyers with potential sellers may also be involved.

The management activities that are paid for through PWS programs can run the gamut from development of riparian buffers or livestock fencing, to protection of streamside habitats and water quality, to invasive species removal, to water efficiency projects to reduce consumptive use, to forest management activities to improve watershed health, to wetland restoration projects. PWS projects can also focus on regulation of water temperature for sensitive species, particularly trout and salmon in Pacific Northwest watersheds.

The Conservation Registry, a repository of information about conservation projects throughout the United States, has 33 PWS programs currently registered in its database. One of the oldest and most recognized PWS programs is the City of New York’s innovative plan to protect watershed services through a PWS program rather than invest tens of billions of dollars into hard, water management infrastructure (such as water treatment plants, filtration and delivery) to accomplish the same goals.

Rather than invest multiple billions into concrete and gray infrastructure, in 1997, New York decided to invest a fraction of that amount into acquisition of land and easements to protect open space, improve water treatment and septic systems, and mitigate water pollution in the upper watershed reaches to protect water quality for downstream users. The end result, after many years of negotiation with upstream landowners, was that the City spent approximately $1.5 billion in watershed protection and $167 million dollars annually in ongoing maintenance. This obviated the need to spend $6 billion on water treatment infrastructure, with a price tag of $250 million per year in maintenance costs.

Two of the most studied and well-known western examples that were modeled, in part, after this example, and that could be relevant to the Verde River watershed are the Denver Water Forest to Faucet Partnership and the Santa Fe Municipal Watershed Restoration Project (another “forests to faucet” program). These two programs are discussed in more detail in the following case studies:

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