1 Water Funds Latin American Water Funds Partnership Experiences from Scaling Up Watershed Conservation Fernando Veiga Rebecca Tharme The Nature Conservancy

2 Investing in Green Infrastructure Ecosystems provide services to society Growing evidence that the conservation and restoration of ecosystems are key to guarantee water security for human needs, and in many cases represent the most cost-effective solutions Water funds rely on concept of ecosystem services e.g. erosion abatement; sediment reduction; nutrient filtration; flow regulation; flood control - clean reliable water sources Water Funds invest in conserving watersheds to improve or maintain water- related benefits and regulate water-related risks

3 UsersProviders Quito Ecuador Population 2 million Condor Bioreserve & Surrounding farmlands $ WATER SERVICES $ Financial Fund Water Funds Board Water Fund ECOSYSTEM SERVICES MODEL WF is a conservation trust fund that finances watershed protection

Water Funds are effective tools for watershed conservation because they: Connect suppliers of ecosystem services with beneficiaries, providing direct benefits downstream and improved livelihoods upstream (efficient) Mitigate water scarcity and pollution problems at the source rather than end-of-pipe treatments (effective) Provide a sustained funding mechanism with a flexible governance structure to allow for adaptive management of risks and opportunities (sustainable)

5 Most important water supply area in Brasil - 50% of São Paulo metropolitan area, 9 Mill people Poor land-use practices in sensitive areas undermining system capacity to serve growing demand Invest models estimated mean erosion rates and sediment loads – ha of priority areas (3% of total area) for water fund investments = 50% of sediments abated = tons per year US$ 4.9 million/year of potential reduction in water treatment and drainage costs (excl. other potential benefits e.g. contaminants reduction) Business case São Paulo, Brasil

6 Sugar cane harvest (million tons) Source: Sugar Cane Research Centre - Cenicaña – estimations Asocaña 8.7% decrease in productivity Loss of $33 million / year Loss of $250 / ha / year Sugar cane mills are main funders - for water supply assurance Production with 5 cycles Production with 4 cycles Business case Cauca Valley, Colombia - Most important sugar cane production area in country ( ha) - Increased pressure on water resources - potential future reduction from 5 to 4 irrigation cycles with current degradation trends

7 Sources: CIAT 2007, Bogota Water Fund Water quantity Quantity of sediments (Component of Quality) Conserved Area Uses inside Protected Area Outside Protected Area m3/ha/year Ton/ha/year Regulation significant but not quantified 10:1 Reducing sediment loads by 2 Million tons Projected savings USD 3.5 M per year in treatment costs Feasibility Study Economic Rationale Bogotá, Colombia

8 Proof of Concept Quito Water Fund Importance 2 million residents Condor Bioreserve: 2.5 million acres, exceptional biodiversity, inc. 760 bird spp.; 28 rivers Partners EMPAAQ (Quito’s Water Agency); Quito Electric Company; USAID; Swiss Development Corporation; Cerveceria National (beer company); Tesalia Springs Co. (water bottling company) Fund Progress 2000: $ start-up 2013: ~ $ Since 2006, 2% of the water utility revenues Annual investments of nearly $2-3 million (leverage) Páramo and forest as biodiverse natural water tower 80% of water for the city of Quito, Ecuador, from three protected areas and their buffer zones Conversion with land pressures reducing ability to provide services

9 Proof of Concept Quito Water Fund Benefits to People Permanent support through various programs to communities close to the water sources Enrolled children in environmental education programs Over 200 families engaged in community development projects in rural basins Conservation Progress ha of public lands protected ha of private lands restored and/or under Best Management Practices

10 Steps to establish a Water Fund Pre- feasibility and Evaluatio n Which ecosystem services? Where is the area of influence? Who are the stakehold ers? Pre- feasibility and Evaluatio n Which ecosystem services? Where is the area of influence? Who are the stakehold ers? Design Feasibility studies: Environment al Socio- economic Institutional and legal Negotiati on Institution al arrangem ent Partners’ commitm ent (financial and technical) Maturity Financial sustainabili ty Consolidati on of field activities and monitoring Operation Contracts with local stakeholde rs Field activities Fund- raising Monitoring

11 Science-based approach Contribution to aquifers Contribution to flows SedimentsCoverage Highest priority areas for conservation Biodiversity connectivity Water for life and sustainability

Investment Portfolio

13 Investments Private and communal lands 1.Conservation agreements 2.Best agricultural and cattle ranching practices (silvopastoral systems) 3.Riparian forests 4.Reforestation and restoration 5.Income generation 6.Environmental education Public areas 1.Implementation of management plans 2.Park guards

14 Peru Ecuador Colombia Brasil

15 WATER MONITORING Water Monitoring Sites Precipitation 3 sites Flow 3 sites Quality 9 sites 9 parameters Parâmetro Analítico PH Turbidez DBO Cor Coliformes Termotolerantes Oxigênio dissolvido Nitrogênio amoniacal Fósforo Total Temperatura Community Engagement

16 Biodiversity Monitoring Importance of riparian areas Terrestrial monitoring of páramos and forests also showing first encouraging results (e.g. forest bird species in restoration areas) Paulo Petry

Community monitoring 4218 families benefited upstream in watershed

Monitoring of multiple water funds ongoing

TNC, FEMSA Foundation, IDB and GEF Launched in 2011

20 The vision Over the next 5 years $27 million in Seed Capital will support direct investment of $143 million in 32 Water Funds, leveraging additionally $500 million providing long-term payments for environmental services to rural communities, and securing clean and sufficient water and effectively conserving 7 million acres for 50 million people in Latin America

1.Support the establishment and strengthening of the WFs 2.Identify and share best practices 3.Development of regional projects 4.Support monitoring initiatives 5.Keep developing the business cases 6. Raise awareness (Where Does Your Water Come From?) 7. Support the green infrastructure approach in water sector loans (IDB and CAF) 8. Partner with water regulators with the aim of including the watershed conservation costs in water tariffs (ADERASA – PE, CR, BR) Goals

Status 15 in evaluation 14 in design 13 operating 1 mature Opportunities Exchange lessons learned Regional players (public and private) – reduction of transaction costs Diversity and cooperation Upscale (implementation channel) Expand to new geographies (Africa, USA) Water Funds as at June 2013

23 Thanks