Hold back the waters – for cash?

Tommy Wells, Director, Washington, D.C., Department of Energy and the Environment (Credit: DOEE)

From Australia to the US, cities are starting to embrace stormwater retention credit trading, or ‘catch and trade’ markets.

By James Workman

Extreme weather wreaks havoc on modern cities. A single storm falling on a 200 km2 city can generate two million cubic metres of stormwater runoff within hours, eroding lands, gathering toxic pollutants, overflowing sewers and drains, and degrading the aquatic life of local streams.

Water professionals recognise these risks are made worse by the sprawl of hard surfaces. But they lack funds to hold back the water before its momentum overwhelms the city.

Elected officials can’t and won’t force voters to “slow, spread and sink” harmful runoff, or redo concrete or asphalt until impervious surfaces can ‘breathe.’ Nor can underfunded regulatory agencies afford to subsidise voluntary retrofits. So how can cashstrapped municipalities grow “spongelike” to absorb the escalating shocks from climate change?

One flexible new approach to this age-old problem is to set up a market for rainfall that encourages private and public interests to trade in urban stormwater retention credits (SRCs).

The idea behind an SRC is to set a hard overall volumetric target, or cap, of stormwater runoff per unit of land. Developers can then choose to capture their share on site, or purchase credits from those elsewhere who voluntarily surpass their requirements and have runoff savings to spare. One stormwater retention credit = one gallon of retention capacity for one year. It adds up. One 11,000 gallon rain garden could earn US$25,000 dollars a year.

That motivates investors, landowners, developers and even church congregations to seek and find new ways to catalyse green infrastructure retrofits and mimic natural processes. Incentives encourage network effects, as aggregators seek opportunities. The city can act as market-maker, enforcing compliance while aligning public and private interests under a meaningful–and potentially rewarding–overarching goal.

Researchers writing in the Urban Water Journal argue that this marketbased approach can quickly “identify the most efficient investments to reduce urban stormwater impacts at minimum cost.” Under SRC frameworks, an environmental procurement auction reveals and minimises the cost of private interventions.

It’s not just academics who say so. Early successful results of StormwaterTender, a field trial in Melbourne, Australia have led other cities, including arid Los Angeles and humid Washington DC, to adopt similar low-impact systems for stormwater infiltration, and to protect water quality.

Today’s Washington DC residents are told they can generate and sell SRCs to earn revenue for projects that reduce harmful stormwater runoff by installing green infrastructure (GI) or by removing impervious surfaces. The Department of Energy and the Environment (DOEE) acts as market maker, and helps “lock in an SRC sale price, so you’ll still have the option to sell your SRCs in an open market to properties that have regulatory requirements for managing stormwater.”

SRCs are still in their relative infancy, but maturing fast. In 2018 DOEE completed five large rain gardens that in each storm can prevent more than 350,000 litres of harmful polluted stormwater runoff from reaching the local Anacostia River.

The market scheme is run by District Stormwater LLC, a collaboration between NatureVest, the impact investment arm of The Nature Conservancy and the asset management firm Encourage Capital, which has attracted a US$1.7 million investment from Prudential Financial.

One trust-building innovation by the public-private partnership has been DOEE’s US$11.5 million dollar commitment to purchase credits at a certain price floor. “The SRC Price Lock Programme aims to catalyse green infrastructure construction in areas where untreated stormwater drains directly to District waterbodies,” says DOEE Director Tommy Wells of what he calls a stock market for runoff. “Our SRC programme enables developers to purchase credits in order to comply with their regulatory obligations, [shifting] the developer’s funding for green infrastructure to the areas that need it most.”

Jon Roberts of Solvitect LLC, an SRC aggregating business, calls the Price Lock programme “a game-changer for investors who are interested in funding large-scale green infrastructure in the District. The certainty that DOEE will purchase SRCs makes it easier to fund such projects.”