Water Share Using water markets and impact investment to drive sustainability Colorado River Delta, Mexico. © Nick Hall Water scarcity is a major issue for nearly half of the worlds populationAcknowledgements Lead author Brian Richter Primary contributors Giulio Boccaletti, Lauren Ferstandig, Emily Powell and Charles Wight Institutions or individuals contributing data and/or analyses Austin Water: Jill Mayfield California Environmental Associates: Amy Dickie CDP: Cate Lamb Conservation International: Ian Harrison Culp & Kelly LLP: Peter Culp International Union for Conservation of Nature: Will Darwall Lower Colorado River Authority: Lyn Clancy San Antonio Water System: Adam Conner San Diego County Water Authority: Tim Bombardier and Stuart Williams Texas Commission on Environmental Quality: Joe Nicosia The Nature Conservancy: Jonathan Higgins, Dale Turner and Emily Chapin The Rockefeller Foundation: Fred Boltz and Alex Martinez University of Colorado and Colorado River Research Group: Douglas Kenney University of Kassel: Martina Floerke and Christof Schneider University of Massachusetts Amherst: Casey Brown University of Minnesota: Kate Brauman University of Virginia: Peter Debaere, John Harbin, Amelia Syvrud, Hannah Backman, Briana Bergstrom, James D. Brown, Rachel DiBenedetto, Adrianna Gorsky, Emily Keenan, Jason Knickmeyer, Chantal Madray, Martha Morris, Benjamin Pickus, Devin Rowell, Susan Ryu, Laura Szczyrba and Xiaoxia Xiang Reviewers The following people served as report reviewers. Their contributions helped strengthen the report. The content and positions expressed in this paper, however, are those of The Nature Conservancy and do not necessarily reflect the perspectives of those who provided input: Adam Conner, Lyn Clancy, Peter Debaere, Amy Dickie, Taryn Goodman, Laura Huffman, Charlotte Kaiser, Eloise Kendy, Alex Martinez, Stuart Orr, Chris Perry, George Wente and Michael Young Designer Paul Gormont, Apertures Inc. Editors Andrew Myers and Meghan Snow Funding support This report would not have been possible without the generous support of The Rockefeller Foundation and Lyda Hill Foundation. Please cite this document as: Richter, B. 2016. Water Share: Using water markets and impact investment to drive sustainability. The Nature Conservancy: Washington, D.C. ©2016 The Nature Conservancy Printed on recycled paper. Acknowledgements / Water Share / 3 Acknowledgements 3 Foreword 7 Executive Summary 9 Water scarcity is a top risk to global prosperity and ecological integrity _ 9 It is time for new approaches in water management_ 10 The promise of water markets _ 10 Conclusions and recommendations for action _12 CHAPTER 1: Running Out of Water 17 Introduction _17 Taking stock of scarcity in the world today _22 Increasing the risk of water shortage _24 The consequences of scarcity for nature _28 CHAPTER 2: It is Time for New Approaches in Water Management 33 Surplus water is hard to find _33 The renewable water supply is declining_34 The costs to secure more water are too high _37 CHAPTER 3: The Promise of Water Markets 41 Water markets as instruments of efficient allocation between nature and people _ 41 Reaping the benefits of water markets _ 44 Water market opportunities already exist in many countries _ 44 Water markets can enable restoration of water flows for nature _ 46 Opportunities for private investment in water markets _ 48 A private initiative to restore nature Water Sharing Investment Partnerships _ 48 The worlds first Water Sharing Investment Partnership: Murray-Darling Basin, Australia _52 T able of Contents Sabie River, South Africa. © Brian Richter 4 / Water Share / Table of ContentsCHAPTER 4: Conclusions and Recommendations for Action 55 One solution will not fit all situations, custom-tailoring will be essential _55 Strategy C1 Facilitate long-term (permanent) water trades within farming communities _56 Strategy C2 Facilitate long-term (permanent) trades between farmers and cities _56 Strategy E1 Facilitate short-term (temporary) trades within farming communities _57 Strategy E2 Facilitate short-term (temporary) exchanges between farmers and cities _57 These solutions are within reach, but we must act now _58 Non-governmental (NGO) community _59 Irrigation farming communities _59 Political leaders _ 60 Private investors, fund managers and financial consultants _ 60 Urban water managers _61 The path forward _61 APPENDIX I: Water Market Case Studies 63 San Diego, California (United States) _63 Background _63 The role of water market transfers_63 Environmental outcomes _ 64 Economic outcomes _ 64 Potential role for Water Sharing Investment Partnerships _ 64 Austin, Texas (United States) _66 Background _66 The role of water transfers _66 Environmental outcomes _67 Economic outcomes _68 Potential role for a Water Sharing Investment Partnership _68 San Antonio, Texas (United States) _70 Background _70 The role of water transfers _70 Environmental outcomes _71 Economic outcomes _72 Potential role for a Water Sharing Investment Partnership _72 Murray-Darling Basin, Australia _74 Background _74 The role of water transfers _74 Environmental outcomes _76 Economic outcomes _76 Potential role for a Water Sharing Investment Partnership _77 APPENDIX II: Methodology For Global Economic Projections 78 GLOSSARY 81 ENDNOTES 83 Table of Contents / Water Share / 5 Medina Lake, T exas, United States. © Blake Gordon More than 50% of the worlds cities and 75% of all irrigated farms are experiencing water shortages on a recurring basisForeword This report addresses the fundamental question of how to share water when there is not enough to satisfy all needs for people and nature. Water scarcity touches the lives of nearly half the people on this planet. Half of all large cities and three-quarters of all irrigated farms are already experiencing recurring water shortages. Today, more than 90 percent of water consumption in water-scarce regions goes to irrigated agriculture, and from Pakistan to Kenya, from the United States to China a changing climate and increasing demands from a growing global population are testing the limits of what scarce water supplies remain. For many communities suffering from water scarcity, the option of building additional, often expensive, supply infrastructure is not available. And while we face the consequences of increasingly limited resources, water diverted for cities, industry and crops often comes at the imperilment of freshwater ecosystems. The fundamental challenge is to do more with less to efficiently allocate water to the most productive uses. Water markets are institutions designed to do just that. If constructed and regulated well, they can help increase the efficiency of water allocation, and by revealing the value of water to different users, drive greater efficiency. Of course, water markets are not a solution to all scarcity situations, but they are a powerful regulatory construct to manage limited resources. While they offer a way of mediating scarcity for commercial and public uses of water, their inability to account for environmental needs is often perceived as a critical flaw of these constructs. This report shows that through new approaches to water markets, we have an opportunity to shift water back to the environment while increasing the productivity of irrigated agriculture and meeting the needs of cities. In many regions, a well-functioning water market can provide the institutional framework for users willing to consume less to be rewarded by those needing more or wanting to return water to the environment. Recognizing the potential for water markets to alleviate water scarcity around the world, including the needs