Water Credits
Background:
Green water is the water held in soil and available to plants. It is the largest freshwater resource but can only be used in situ, by plants. Green water is managed by farmers, foresters, and pasture or rangeland users.
Bluewater is groundwater and streamflow, supporting aquatic ecosystems and that can be tapped for use elsewhere: for domestic and livestock water, irrigation, industrial and urban use. Bluewater flow and resources, in quantity and quality, are closely determined by the management practices of upstream land users.
Green water management comprises effective soil and water conservation practices put in place by land users. These practices address sustainable water resource utilization in a catchment, or a river basin, at the source. Green water management increases productive transpiration, reduces soil surface evaporation, controls runoff, encourages groundwater recharge, and decreases flooding. It links water that falls on rainfed land and is used there, to the water resources of rivers, lakes, and groundwater: green water management aims to optimize the partitioning between green and blue water to generate benefits both for upstream land users and downstream consumers.
Green Water Credits (GWC) is a financial mechanism that supports upstream farmers to invest in improved green water management practices. Those farmers will benefit directly, but the benefits may not be sufficient to compensate for their investments. To support these investments, a GWC fund needs to be created by downstream private and public water-use beneficiaries. Initially, however, public funds may be required to bridge the gap between investments by upstream land users and the realization of the benefits by those downstream.
There are two main types of water credits:
Green water credits are awarded for practices that improve the efficiency of water use, such as irrigation or rainwater harvesting.
Blue water credits are awarded for practices that improve the quality of water, such as wastewater treatment or pollution prevention.
Water credits can be traded between individuals, businesses, or governments. The price of water credits is determined by supply and demand. When water is scarce, the price of water credits will be high. When water is abundant, the price of water credits will be low.
Water credits can be a useful tool for managing water resources in a sustainable way. They can help to reduce water consumption, improve water quality, and protect ecosystems.
Pilot areas
This pilot design, coordinated by ISRIC has been piloted in Kenya, Morocco, China, and Algeria with funding from the International Fund for Agricultural Development (IFAD) and the government of the Netherlands in close collaboration with various national institutions.
Theory behind GWC
Run-off and high evaporation rates lead to the loss of green water, defined here as the water that is held in the soil (see image below). Soil and water conservation (SWC) measures such as mulching and contour cropping reduce the amount of run-off and evaporation. As a result, the amount of water available for plants and deep percolation to the groundwater (blue water) increases.
Besides runoff and high evaporation, erosion leads to increased sediment loads in rivers causing silting up of dams. There are many soil and water management practices available to diminish accelerated soil erosion and improve water quality.
Water scarcity is undermining our habitat, economy and society: It already threatens food security, health and development; shortage is increasingly felt in cities. On present trends, 2.8 billion people will be suffering absolute water shortage by 2025 and two thirds of the global population will be suffering water stress1 . This is where climate change will strike first.
We are caught unprepared: The source fresh water is rainfall; two thirds of which is held in the soil and used by plants - green water; only one tenth becomes accessible stream flow and groundwater - blue water (Figures 1 and 2). Nearly all investment in water goes into abstraction of this easily accessible water. More than two thirds of the water abstracted is used for irrigation. Replenishment is neglected.
A policy shift is needed … from coping with water scarcity to creating opportunities. Management of the whole freshwater resource, including demands and uses even before the water reaches streams and groundwater, opens a wider stage for negotiation, trade-offs between competing claims, and action to optimize water flows.
Green water management: banking water in the soil Water productivity can be significantly increased, the hazards of flood and drought mitigated, and rural livelihoods secured by two fundamental improvements in soil management: increasing infiltration of rainfall into the soil, thereby cutting storm runoff and shifting unproductive evaporation to productive water use. More infiltration means banking water in soils and aquifers which feed river base flow; less storm runoff means less soil and bank erosion, less flooding, and less siltation of streams and reservoirs.
Poverty is the constraint: Farmers are well aware of their private benefits from green water management - but they need immediate as well as long-term returns for their labour and material inputs. Where farmers are poor, with limited access to markets and low prices for their produce, poverty drives a preference for shortterm returns – so that the short-term cost of green water management outweighs any long-term private benefits. Further incentives are needed for farmers to adopt and maintain best practice.
Green Water Credits bridge the incentive gap: Quite small, regular payments by downstream water users enable farmers to adopt sustainable management of land and water; at the same time, they combat rural poverty by diversifying income. This is a particular case of Payments for Environmental Services.
How are Green Water Management and Green Water Credits different from soil and water conservation as it has been practised for half a century? Generations of effort in soil and water conservation has made no appreciable difference to the degradation of land and water resources in most parts of the world because:
• It was never financially viable
• Soil conservation has been handled by agricultural extension services, in isolation from water policy; it was seen as a benefit to farmers
• Water management has been undertaken in isolation from land management by engineers and public utilities, concentrating on the very limited, easily-abstracted stream flow and groundwater- blue water
• Green Water Management deals with water at source and flowing through the landscape; with rainfall; with green and blue water together
• Green Water Credits is a financial mechanism in which the downstream users strike a deal with upstream land and water managers to maintain the resource and mitigate floods and droughts. Correcting the present market failure makes best practice financially viable. It also is the most practicable adaptation to climate change.
Operational steps
• Assess existing land and water rights and competing claims on the water resource.
• Assess the water resource, its value in all its competing uses, the costs of mismanagement, the extent to which green water management can optimize the resource, and the costs of this management.
• Establish a platform for negotiation between interested parties; ensure that each is well informed; seek optimum allocation; agree on a fair price
• Establish a mechanism for collection and payment of credits, verification of claims, and settlement of disputes. Payments may be financed by a mix of water users and public utilities, insurers, and general taxation.
Potential ways to monetize water credits:
Sell them to water utilities. Water utilities can use water credits to offset their water usage requirements, which can help them reduce their costs. Utilities may be willing to pay a premium for water credits from credible sources.
Use them to purchase goods or services. Some businesses and organizations may be willing to accept water credits as payment for goods or services. This could be a way to earn money from water credits without having to sell them to a water utility.
Use them to offset taxes. In some jurisdictions, water credits may be eligible for tax credits or deductions. This could provide another way to save money on taxes.
Use them to invest in renewable energy projects. Some companies are developing projects that use water credits to finance renewable energy projects. This could be a way to support renewable energy while also monetizing water credits.
The specific opportunities for monetizing water credits will vary depending on the location and market conditions. However, the potential is there to generate revenue from these valuable assets.
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