Tag Archives: Stormwater

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Leveraging Public Private Partnerships (P3) for Urban Stormwater Management in the Chesapeake Bay

The largest estuary in the United States, the Chesapeake Bay, drains water from the states of Maryland, Virginia, Pennsylvania, Delaware, West Virginia, New York, and the District of Columbia.  With such a large drainage area, managing water quality within the Chesapeake has been particularly challenging, as efforts must be coordinated at the federal, state, and local level.  Since the discovery of the first ‘dead zone’ in the 1970s, the health of the Chesapeake has been a focus of environmentalists and a source of contention among stakeholders.  Yet now efforts to clean up the bay must be improved due to Environmental Protection Agency (EPA) mandates.  Finding innovative financing solutions for these necessary cleanups was the focus of the second in the Yale Center for Business and the Environment’s webinar series “Nature’s Returns: Investing in Ecosystem Services”. John Campagna, president of Restore Capital, spoke about the opportunities for public private partnerships for urban stormwater management in the Chesapeake Bay.

Why should municipalities pursue public-private partnerships (P3) to finance projects to meet their stormwater targets, rather than investing in these projects themselves? Campagna offered three main reasons:

  1. Public sector resources are limited and can only finance projects on public land, not on private land.  This limits both the amount of money that can be spent and the spatial distribution of the projects.
  2. The public sector can raise money through taxes, usage fees, or taking on debt, but their pool of available capital is limited compared to the amount of capital that the private sector can access.
  3. Project development and implementation takes a long time to wend its way through the thickets of public sector bureaucracy, yet action is needed now.

Although stormwater trading markets are one potential solution for meeting goals, Campagna stated that they had failed to materialize, making another strategy necessary in order to achieve targets. P3 approaches are common for transport infrastructure and in European and Asian countries, but have been less utilized for water infrastructure.

How does it work? According to Campagna, the basic idea is as follows: The public sector needs to meet a certain target as mandated by the EPA or other environment agency.  They put out a call for proposal for private sector companies to make the necessary investments to meet the targets. These private sector investors can leverage bigger pools of finance, implement multiple projects, act more efficiently than the private sector, and move quickly.  In return, the public sector promises to pay the private sector what Campagna terms “availability payments”, payments designed to pay the private developer back over 30 years for their project costs.  These availability payments can be paid for through water taxes, additional payments from water users, or contributions from private businesses that benefit from the co-benefits of green infrastructure (sounds like investments in watershed services to me!).

What are the risks to this approach?

  1. P3 partnerships encourage the development of new technologies and solutions to solve problems – but what if the technology is not effective?
  2. Private investors may be inexperienced in managing, maintaining, and implementing water infrastructure.
  3. Making “availability payments” may be easier than finding an upfront source of capital to fund a public works project, but finding that sustainable revenue stream over 30 years is still a challenge.
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New Washington, D.C. Rule for Stormwater Credit Trading

 

The newest water trading scheme in the United States is now in place with the final passage of the Washington, D.C. stormwater trading rule.  The rule, finalized on July 22, 2013, sets up a stormwater-trading-credit program.  The new rule applies to large construction projects that disturb 5,000 square feet or more of oil, as well as renovations to structures larger than 5,000 square feet which projects costs at least 50% of the pre-project value of the structure.

In order to meet the requirements of the stormwater retention rule, property owners must meet at least one-half of the required retention volume on-site, through installation of an approved type of green infrastructure, such as a green roof, rain garden, or permeable pavement.  In addition, property owners can purchase Stormwater Retention Credits (SRCs) to meet the remaining 50% of their required retention volume off-site.  Facilities also have the option to pay an in-lieu fee of $3.50/year/gallon of Off-Site Retention Volume (OSRv).

Pervious driveway, one of the approved green infrastructure designs for SRCs.

The Stormwater Credit Exchange (SCE) is the home of the market for the stormwater credits.  It’s too early in the process to tell how much activity the SCE will see – or how much eachSRC will end up costing.  The minimum rate set is $1/SRC, but will fluctuate as the market demands.

One hope of the new rule is that encouraging the production of SRCs in order to earn money will encourage smaller retrofits across the DC area – from individual homeowners to small businesses that can easily include a retrofit, but are not required to.  Spreading the installation of green infrastructure across the District should increase overall stormwater retention and protect watersheds and water bodies that have not benefited from previous stormwater management rules.

For more information about the new stormwater rule, see The Examiner’s article on the rule.

The Stormwater Credit Exchange, operated by the Center for Environment, Commerce & Energy, contains information about the qualifications for SRCs, the trading platform, and the formulas used to calculate the retention requirements for facilities.