Innovative Market-Based Mechanisms and Networks for Long Term Protection of Water Resources

Lead Research Organisation: School of Oriental & African Studies
Department Name: Financial and Management Studies

Abstract

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Description The project's focus was participation in, and evaluation of, the development of Payment for Ecosystems Services (PES) approaches by the Westcountry Rivers Trust (WRT), an environmental charity. In line with the RELU programme 'call' the primary objectives concerned building and evaluating networks, knowledge exchange, and adaptation, through exploration of a novel approach and its partnerships. Research undertaken was relatively small scale and "gap filling" in support of this agenda.

Narrow definitions of PES focus on periodic payments for income foregone matched to the opportunity cost of the ecosystem service provided and conditional on defined service delivery; but contemporary practice and policy guidance in the UK and internationally adopts a broader scope. To date many PES payments for water resource protection have grant funded investments in improved farm infrastructure that along with conditional changes in farm management are assumed to deliver desired ecosystem outputs.

The credibility of a PES scheme is enhanced when scientifically valid approaches are used for spatial targeting of payments and assessment of environmental benefits. As supporting research the project team worked with WRT to assess alternatives for land use change which will bring about water quality improvements, and to model the likely impacts of such changes on greenhouse gas emissions. The outputs of this assessment have contributed to the suite of tools employed by WRT in their multi-criteria analyses of catchment management options.

The project examined in particular the 'Upstream Thinking Project' (UTP) which aims to protect water quality through improved land management. The UTP was co-developed by WRT and South West Water (SWW), who as buyer of ecosystem services recognised the economic, ecological and regulatory benefits of improved raw water quality. Partnership was essential, as SWW had no working relationships with farmers whilst WRT could act as an ethical non-profit intermediary with the capacity for farm level assessments and advice.

It was observed that the development and implementation of the UTP required networks of technical providers and authorities, partnership working and creative knowledge exchange. Social capital and trust between the parties involved are important facilitating factors, and assets for a scheme intermediary that can reduce transaction costs, help resolve conflicts and enhance sustainability. Coordinated engagement of landowners can also improve impact through interventions that are well targeted rather than scattered and ad hoc. Collective compliance by participating farmers with baseline regulation also helps achieve "additionality" in response to PES incentives, helping to avoid equity concerns that may arise if payments are seen to "reward polluters" whilst neglecting farmers already demonstrating best practice.

In line with the outcomes of prior work the requirement for partnership working was found to be reinforced by the desirability for the UTP to be established as part of an integrated and holistic approach to catchment management. This requires polycentric and multi-level partnerships between organisations. A key role is played by intermediaries and knowledge brokers in achieving the necessary "vertical" integration and "horizontal" coordination of authorities and actions.

Further development of PES approaches by WRT envisages long-term catchment restoration schemes based on one-off payments to landowners for cessation of intensive farming on selected areas. Attitudes of farmers to such proposals and examination of the factors influencing participation has been undertaken as supportive research through two surveys. First an innovative two-stage deliberative survey of landowners was conducted to assess attitudes to scheme proposals. Second a choice modelling survey examined relative farmer preferences for versions of the envisaged land management scheme. From the stated preference data it is possible to derive a valuation for each attribute level corresponding to the estimated incremental payment farmers require to adopt each scheme variant compared to baseline specifications.

It was first learnt that a majority of respondents were receptive to the propositions and characteristics of the proposed approach, but observed variation by landowner profile and farm type merited further investigation. The second survey showed that high levels of adoption of a scheme for targeted long term land extensification or retirement were achievable but compensation would be significant. Moving agreements from relatively short timeframes (49-149 years) to long term commitments (499+ years) would cost significantly more. Farmers would also require significant additional compensation to allow public access to retired areas. Riparian buffer strips on marginal land would require the least compensation by land type, but securing other marginal land would not cost much more. Significantly higher compensation again would be needed for measures on good land.

Further research assessed conservation easements and restrictive covenants as legal tools for such long term land management agreements. Restrictive convenants are widely used in the UK, including in the UTP. However, they are relatively 'disfavoured' by English common law and may only be reliable for relatively short term agreements between the contemporary contracting parties. Conservation easements as used in the USA provide a means for conservation without change in land ownership at less than the full cost of land purchase. Land can be retained for private benefit under flexible agreements well matched to mutual objectives and circumstances. Compared to 'restrictive covenants' (typically applied to land on sub-division and under common law subject to 'appurtenance requirements' for the landholding that benefits from the restrictions imposed), conservation easements make it easier to place affirmative requirements on land management. It is also more practical and cost saving that parties to a conservation easement need not hold land appurtenant to that restricted. However, the transaction and other resource costs incurred to monitor and enforce conservation easements should not be underestimated.

The UTP provides an example of the mechanism of a private water company paying to protect water quality. Further research assessed the potential of alternative existing legislative and market mechanisms for the same goal. A range of mechanisms can contribute, but none provides a sole solution, and co-ordination of spend and appropriate supporting governance arrangements will be needed to deliver integrated catchment management solutions.

The project team and their partners carried out a wide range of national and international knowledge exchange and dissemination activities during the project.
Exploitation Route See publications and narrative impact section.
Sectors Agriculture, Food and Drink,Environment

URL http://www.watergov.org/
 
Description A second RELU project, 'Innovative Market-Based Mechanisms and Networks for Long Term Protection of Water Resources,' built on collaboration in the first project with the Westcountry Rivers Trust and South West Water in the Tamar catchment. It investigated means and institutional requirements for Payments for Ecosystem Services schemes that can complement regulation and advice in incentivizing owners to 'set-aside' or better manage land of priority for water protection. Water is essential to society, the water industry constitutes a significant part of economic activity locally, nationally and internationally, and land and water management are crucial to environmental quality. Typically water resources are governed by top-down, hierarchical approaches at state level. In contrast this research has demonstrated the success of approaches that privilege local stakeholder input and collaborative management at catchment level. Research outputs have contributed to improved and reformed water management in the UK and internationally, evidenced by their adoption by local authorities, NGOs, Defra and others, and promotion in the guidance proffered by organisations including Defra and the OECD. Specifically research outputs have been utilised by the OECD in the form of The United Kingdom case study: payments for ecosystem services (PES) and collective action - 'Upstream Thinking in the South West of England, published as guidance in OECD (2013), Providing Agri-environmental Public Goods through Collective Action, OECD Publishing. Project findings on the legal basis for land conservation agreements has been utilised in the Defra `Payments for Ecosystem Services: A Best Practice Guide', 2013. Endorsement and adoption of the research is also evidenced domestically by leading public, private and third sector agencies concerned with water resource management. Of particular note is the project's impact on the business practices of South West Water Ltd: "The project's twin track approach to water catchment management, combining robust science with comprehensive stakeholder engagement, has had a significant impact on South West Water and is instrumental in contributing to the company's evolving approach to its business. Martin Ross, South West Water's Environmental Manager, explains: "Previously there was no real connection between us and land managers, and the project gave us a way of guiding some initial engagement work in a much more comprehensive way ... now the whole of the company from the Chief Executive down is aware of our complete dependency on the way third parties treat land and water. We have begun to build a new business that is more outward focused and we are moving away from relying on expensive water treatment upgrading to sort out water quality."
First Year Of Impact 2010
Sector Agriculture, Food and Drink,Environment
Impact Types Societal,Economic

 
Description Identifying, bundling and selling practical ecosystem service packages on a catchment scale 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact The WATER project will develop a market based catchment restoration scheme which will be based on a Payments for Ecosystem Services (PES) model.
Year(s) Of Engagement Activity 2011
 
Description Payments for ecosystems services 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact Invited workshop presentation.
Year(s) Of Engagement Activity 2012
 
Description The work of WATER in the Westcountry 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact National workshop presentation
Year(s) Of Engagement Activity 2011
 
Description Written evidence 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Policymakers/politicians
Results and Impact Submission to the House of Lords Inquiry into EU Freshwater Policy, response to a call for evidence by the House of Lords European Union Committee
Year(s) Of Engagement Activity 2011,2012