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Financing source water protection in developing Asia

Conservation and land management funds can be self-financing

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A man drives a boat along a river polluted by leaked fuel, in Shaoxing, Zhejiang Province, China   © Reuters

For China and India, it is air pollution that captures the headlines, but water pollution is an equally pressing issue, as it is for other rapidly industrializing countries across Asia. As these nations address their water quality issues, it will be important for their strategies to include conservation and land management activities that improve the health of source water catchments.

Such activities, known collectively as source water protection, not only improve water quality, and in some cases quantity, but also generate additional environmental and social benefits. Furthermore, these strategies can be implemented through financing vehicles such as water funds that require less direct government spending and can create new sustainable business opportunities.

While stronger environmental regulations and improved conventional infrastructure are also needed to address water pollution in many Asian countries, better land stewardship -- the core of source water protection -- can play an important role in reducing pollution resulting from water flowing across landscapes that have been degraded by human development and agricultural practices.

In Asia, where almost one-third of the land area has been highly impacted by human development, source water protection has enormous potential to make a difference in water quality for millions for people.

Interventions through nature, such as the protection of existing forests, planting trees and shrubs on pastureland, and the use of cover crops on agricultural land can minimize soil erosion, increase water infiltration to provide more reliable water flows and prevent fertilizer runoff into water sources. Furthermore, the use of cover crops and similar agricultural practices can increase crop yields, improving the livelihoods of smallholder farmers.

Reforestation and avoided deforestation have the added benefit of protecting habitats for endangered species -- an important benefit across Asia, especially in China and Southeast Asia, where several biodiversity hotspots are under pressure from development. Across Asia, landscape restoration could prevent the regional extinction of more than 800 imperiled species. Restoring and retaining natural habitats near farmland also provides shelter for pollinating insects that are crucial for the production of fruit and vegetable crops containing micronutrients such as vitamin A, iron and folate that are vital for human health.

Such interventions can even have an impact on global environmental challenges such as climate change. Research by The Nature Conservancy, a U.S.-based conservation organization, suggests that if the 4,000 largest cities in the world invested in upstream land conservation with the main goal of protecting water sources, we could also store and capture more than 10 gigatons of CO2 each year.

With China looking to reduce its greenhouse gas emissions and take a greater world leadership role in addressing climate change, nature-based source water protection strategies can help Beijing make progress on several priorities at once.

Affordable investment

These strategies can be attractive from a financial standpoint, too. "Beyond the Source," a recent study by The Nature Conservancy, in partnership with the Natural Capital Project, Forest Trends, the Inter-American Development Bank and the Latin American Water Funds Partnership, found that one in six of some 4,000 cities studied could see a positive return on investment from reduced water treatment costs alone.

Others could also see an overall positive return on investment when taking into account climate mitigation and other benefits. For half the cities included in the study, source water protection strategies could be implemented for as little as $2 per person annually.

Around the world, funding for conservation ecosystem services in water catchments has come almost entirely from national government subsidies. China spends more than any other government on these services. But water funds offer an alternative and perhaps more sustainable financing strategy -- a mechanism for downstream water users to directly or indirectly compensate upstream land stewards for activities that deliver water benefits to the payers.

Public and private water users, including businesses, utilities and local governments, invest collectively in conservation of the catchments from which they source their water, with comparable costs to what would otherwise be spent on water treatment downstream.

China's Longwu Water Fund, established in November 2015 to reduce nutrient pollution in the Longwu Reservoir in Zhejiang Province and improve farmers' livelihoods, offers one example of how this process can work. The fund is governed by a multi-stakeholder advisory board, which includes The Nature Conservancy, a farmers' representative and a food company. Farmers can enter into a five-year contract for the fund to manage their forest lands via a property right trust.

Through the trust, an operating company implements environmental projects, including the production of organic bamboo shoots and the operation of nature education and ecotourism activities. After an initial investment of $50,000, the profits from these business activities sustain the operation of the fund, which is expanding within the catchment area.

The Longwu Water Fund is small compared to many other water funds around the world, but it is an example of how this model can succeed in China. In the wake of a recent government audit that found that 17.6 billion yuan ($2.55 billion) earmarked for water pollution prevention work in 2016 was not effectively used, the Chinese government has a strong incentive to consider public-private models that can be self-funding and generate new business opportunities in rural areas.

Furthermore, establishing more water funds for source water protection could allow China to further position itself as an environmental leader, in Asia and perhaps worldwide. With 60% of source water catchments on the continent at high risk of erosion, as well as sediment and nutrient pollution, water funds offer the chance for Asian nations to address their water quality issues in a way that also encourages rural development and attends to other environmental and social goals.

Giulio Boccaletti is chief strategy officer and global managing director for water at The Nature Conservancy. Charles Bedford is the organization's Asia-Pacific managing director.

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