Category Archives: Tools and Frameworks

Relevant Research Tools and Frameworks

Determining the Optimal Investment Portfolio for Water Funds

How can a water fund get the biggest bang for its buck? RIOS – the Resource Investment Optimization System – is a new tool designed to help water funds make cost-effective investments in watershed services.  Using RIOS, a water fund manager can utilize existing biophysical, social, and economic data to find the best locations for investment in order to have the highest possible return on investment.  Initial investments made using the RIOS approach have improved the return on investments in Colombia by up to 600%.

According to the Natural Capital Project’s website (the product developer), RIOS is designed to answer three questions:

  • Which set of watershed investments (in which activities, and where) will yield the greatest returns towards multiple objectives?
  • What change in ecosystem services can I expect from these investments?
  • How do the benefits of these investments compare to what would have been achieved under an alternate investment strategy?

Download the RIOS software here (Microsoft Windows 7 required): http://www.naturalcapitalproject.org/RIOS.html

Learn more about how the software was developed and the theoretical documentation here:

http://ncp-dev.stanford.edu/~dataportal/rios_releases/RIOSGuide_Combined_8-22-13.pdf

Projects Tools and Frameworks

Pre-Feasibility Assessment for IWS

The Water Initiative has developed an “IWS Pre-Feasibility Assessment” to help stakeholders or managers for potential projects assess whether or not IWS/NI provide the best solution for their case.

Comment on this post to let us know what you think. Have we left something out? Would this assessment have captured the problems and opportunities in your watershed? Is it too detailed, not detailed enough, or just right?

What’s the difference between a pre-feasibility assessment and a feasibility study? And why should we do one?

A feasibility study should make a detailed assessment of the hydrological, economic, political, and social conditions existing in the watershed that will determine whether or not a project would be successful. This pre-feasibility assessment, in contrast, asks potential managers to make estimates of each of these factors – detailed enough to make a broad “possible/impossible” decision – but without requiring a large time or financial commitment.

As I mentioned in my last blog post, too many projects decide to use IWS as an end in itself, rather than as a means to an end.  When it’s viewed as an end, then understanding whether the interventions have any economic value is moot – we’ve got the system in place, who cares if it’s producing the benefit we need.  This is, of course, not necessarily a bad thing – if a project is sustainable, the payers and beneficiaries are happy, and there’s not a negative environmental impact, it’s creating a positive impactl.  But if we want to succeed in Scaling Up Investment in Watershed Services, then we also need to make it clear that IWS may not be the best solution to every problem – sometimes the cultural, political, economic, or environment context are not right. The pre-feasibility assessment is a tool to help us accomplish this task without too much upfront investment.

What’s in the pre-feasibility assessment?

  • Identification of Main Problems and Ecosystem Impacts. What are the problems? How are they affecting consumers and ecosystems?
  • Livelihoods and Social Baseline. Who is affected by these challenges? What are the economic drivers in the area?
  • Watershed Services. What actions could be taken to solve the water problems?
  • Economics. Is there someone out there who might be a payer? Why would they want to? What are some rough estimates of management costs and values of the benefits?
  • Status of negotiations. Who would be the main players? Do they get along? Have they already attempted negotiations about watershed management (or other issues) before? Can we learn something from prior negotiations?
  • Identification and mapping of stakeholders.
  • Possible model. What IWS model would work best in this cultural, economic, and political context? What are some political, regulatory, or institutional challenges that will need to be addressed?

Take a look at the template here: IWS Pre-feasibility template v2Comment on this post to let us know what you think. What else should be included? How could we make it more user-friendly?

 

Relevant Research Tools and Frameworks

Making the Case for IWS – The Role of Monitoring and Evaluation

When setting up investment in watershed services schemes (IWS), whether it be a water fund, a bilateral agreement, or a trading mechanism, it is easy to miss the forest for the trees.  That is, in focusing on the mechanisms for IWS, we confuse the means with the end.  The end goal of each of the Water Initiative’s pilot projects is to produce a benefit – be it increased water quality, higher stream flows, or lower sedimentation rates – for those who pay into the system.  Without the benefit, what argument is there to convince potential payers that natural infrastructure or IWS is worth the cost?

When assessing the feasibility of an IWS solution, what justifies promoting this solution over another? In its Primer for Monitoring Water Funds, The Nature Conservancy (TNC) lays out two criteria:

 

primer thumbnail

  1. It must provide target services and benefits at lower costs than the alternative, and
  2. The downstream benefits to investors must exceed investment costs.

 

If these two criteria are not met, a sound business case for the private investor (and even the public investor) cannot be made.  For example, if planting trees to promote sediment retention costs more than the costs associated with sediment management at the hydropower station, why should the station operator pay for trees?  The new work that Forest Trends is doing to investigate the marginal cost curves associated with green and grey infrastructure will be one factor to convince potential investors of the business case for IWS.

Monitoring and evaluating the impacts of NI activities undertaken as a result of the IWS scheme thus becomes important.  The Primer for Monitoring Water Funds offers a comprehensive discussion of the different types of monitoring needed to effectively prove the effectiveness of IWS solutions.  Ideally, a monitoring scheme would include comprehensive baseline monitoring in target and control watersheds; assessment of the ecosystem functions, services, and benefits; and monitoring of the socio-economic/development impact of interventions.

Source: Global Freshwater Program, The Nature Conservancy. A Primer for Monitoring Water Funds. p. 39.

But what about projects with limited resources? TNC suggests starting with a clear understanding of what outcomes the stakeholders care about and designing monitoring systems that, at a minimum, measure whether or not these outcomes have occurred.  For example, if a water treatment facility pays for activities to reduce agricultural runoff, at a minimum the monitoring plan should include measuring whether nutrient load at the facility decreases in the time period after the intervention. Preferably though, monitoring would combine measuring ecosystem function , services, and benefits, helping to understand how X improvements in the function translate to Y amounts of benefits, which can then be expressed as a dollar figure for the investors.

TNC outlines five areas of monitoring that should be considered during the planning phase:

  1. Tracking the implementation of activities,
  2. Monitoring the impacts of a specific type of management activity at the site level,
  3. Evaluating the impacts of activities at the watershed level,
  4. New and changing environmental conditions and how those will affect the success of interventions, and
  5. External factors that may affect project outcomes.

For our projects at the baseline monitoring stage, the tools and references suggested for each monitoring area in this publication provide a useful starting point for designing a comprehensive plan – a way to avoid reinventing the wheel and collecting data that won’t prove our point down the line. For each monitoring type, it provides sample parameters and testing designs to most effectively prove what we claim: that IWS is effective at producing desired outcomes at a lower price than ‘gray’ alternatives.

Example Monitoring Framework with Parameters. Source: The Nature Conservancy, A Primer or Monitoring Water Funds, p. 44.

Example Monitoring Framework with Parameters.
Source: The Nature Conservancy, A Primer or Monitoring Water Funds, p. 44.