Blog.May 11, 2015

What’s hot in water?

A group of experts from the international forest and water community met at SIWI to share ongoing water conversations at their respective institutions.

The discussion soon came to focus on the challenges related to creating transfer mechanisms at scale between upstream forest/watershed-dwellers and downstream water users, as well as possible analogies with the carbon market.

There was a common view that water is a much more complex issue than carbon in terms of getting markets to function. It is difficult to capture all water-related ecosystem services and comparisons with the carbon market are maybe not the best way forward. The market value of water could be based on increased quality or volumes of water, but especially volume-based accounting is a challenge since market mechanisms cannot include the possibility to restrain or grant downstream users’ access to water.

Another challenge is that transfer mechanisms often are project-based and short term. Watershed management requires long-term investments and therefore need to be institutionalized. But even when these mechanisms are more long term, as in China, it is difficult to determine the correct compensation standard for ‘producers of water’ and under-payment reduces the effectiveness of the mechanism. Institutional barriers also prevent efficient and equitable compensation. The city of Lima provides a good example of the establishment of a cross-sectorial mechanism that brings together e.g. the Ministry of Environment, Ministry of Housing and Infrastructure and the Ministry of Energy and Mining for policy development. To secure water resources in a sub-basin which provides 50% of Lima’s water consumption and 25 % of the energy use a coordination committee has been established by the responsible ministries, where also NGOs and Universities are invited.

The importance of strong regulations for market-based mechanisms to achieve socio-ecological objectives was highlighted as the last issue for discussion. The question is if one should go to market or not. Quality trading e.g. regarding nutrients is one example where water markets have worked. It was mentioned that regional systems can work fairly well, but in other cases community management might work better.

The group concluded that watershed management is a challenge. It will be critical to have a policy framework and government support at high level for any mechanism to be successful. Long-term transfer mechanisms for water related ecosystem services will be needed, as well as cross-sectorial mechanisms and enabling institutional and regulatory environment for the private sector and local stakeholders. Participants in the roundtable agreed to continue the discussion to explore how to scale up mechanisms for watershed ecosystem services related to water and forest management.

The roundtable was initiated by Swedish Water House at SIWI and the following institutions and companies participated in the roundtable discussion: Center for International Forestry (CIFOR), Ecoloop, Forest Trends, FAO, Global Water Partnership, Stockholm Environment Institute, Stockholm Resilience Centre, Stockholm International Water Institute SSC Forestry, Swedish Forestry Agency.