Financing Green Infrastructure at VX2014

This year, I was lucky enough to be invited again to speak at the VerdeXchange Conference in Los Angeles. The panel I participated on was moderated by our former State Treasurer, Kathleen Brown, and included friends and colleagues Adel Hagekhalil (Assistant Director, City of Los Angeles Bureau of Sanitation) and Jack Baylis (Commissioner, CA Fish and Game Commission). Entitled “Financing Water, Energy and Resilient Infrastructure Projects,” I had three points to make:

Large-scale capital investments in traditional gray infrastructure for water supply, stormwater management, and flood protection are increasingly risky and difficult to justify.

Why are traditional approaches to water supply, stormwater management, and flood protection more risky in today’s environment? The short answer is climate change. But to be more specific, for water resources engineers and planners, there’s a deeply embedded, underlying assumption that has collapsed; and should forever change the way we make water-related investment decisions.

In 2008 an article appeared in Science, authored by a distinguished panel of academics and practitioners. It was a very brief (2 page) paper with the provocative title, “Stationarity is Dead: Wither Water Management?” It starts by defining the meaning and significance of stationarity in water management:

“Stationarity — the idea that natural systems fluctuate within an unchanging envelope of variability — is a foundational concept that permeates training and practice in water-resource engineering.”

In fact, in the planning of large-scale hydraulic structures used for water supply, stormwater, flood control, hydropower generation, and all else, stationarity serves as a fundamental assumption in the estimates of precipitation, water supplies and flows, as well as informing estimates of costs and revenues. And yet, the authors argue that:

“In view of the magnitude and ubiquity of the hydroclimatic change apparently now under way . . . we assert that stationarity is dead and should no longer serve as a central, default assumption in water-resource risk assessment and planning.”

Could they be more blunt? So where does that leave us.

Financing for more resilient green infrastructure comprised of small-scale, decentralized water management investments is rapidly emerging in the marketplace, employing ESCO-like models.

This is the good news. It is easier to finance less risky small-scale green water infrastructure compared to the past. The best example is the City of Philadelphia, with its 25-year, $2.4-billion Green City, Clean Waters plan to eliminate the need to build centralized storage and treatment for urban stormwater runoff, in order to to protect water quality from Combined Sewer Overflows (CSOs) under the Clean Water Act. In short, rather than building the centralized storage, the City has committed to reinvent its urban landscape, reducing demands on the sewer system while increasing livability throughout the City — using their words, to “equip the City to function as a ‘Green Machine.’”

As part of the program, Philadelphia has implemented a stormwater utility charge based on both the imperviousness and size of every parcel of land in the city. Perhaps more importantly, it also established a credit system that reduces those charges for large non-residential and condominium properties that make investments in green infrastructure.

Philadelphia has created a market-based framework that promises to transform the urban landscape on a large scale and accelerated pace. What’s just as interesting is the establishment of new ventures like Green Path Partners (GPP) willing to finance and deliver deals similar to those created by ESCOs in the energy sector. Established by CH2M Hill and EKO Asset Management Partners, GPP and others allow for the aggregation and investment of funds for the deployment of micro-scale green technologies in the water space. It’s already happening.

Finally, this shift from gray to green isn’t prevented by a lack of financing. The obstacle is our collective ambivalence (and occasional inability) to raise and commit substantial ratepayer revenue for green infrastructure improvements.

In my view, the biggest institutional barrier to financing resilient green infrastructure is not a lack of innovation in financial markets or a lack of technologies. In fact, on the financing side, I’ve been told that members of my generation would be delighted to invest a portion of their savings in green infrastructure projects enhanced by the credit strength of private-sector service providers and governmental agencies — offering modest returns.

What is rare, is a decision by a city like Philadelphia to seriously invest the revenues from its stormwater utility into far reaching urban remodeling comprised of small-scale, decentralized, resilient green retrofits — definitively moving beyond traditional gray solutions, where those same revenues could have been spent. And while I witness enthusiasm for the concepts of more resilient green solutions, I don’t see many large-scale water management investment decisions leaning definitively in the direction that Philadelphia is headed.

If we fully recognized the increased risk and uncertainty in our forecasts of future hydrology, many states, counties, and municipalities might make the same choice Philadelphia has made — with the additional benefits of lower costs and improved livability thrown in. A new EPA report on the economics of green infrastructure in Lancaster, Pennsylvania documents those benefits.

The financing is there, what is needed are water management agencies willing to raise and invest rate-payer revenues to shift their capital programs towards properly maintaining the gray assets we have, and rebalancing our future portfolio towards decentralized, green, and resilient urban infrastructure.

Photo credit: Philadelphia Water Department, Green City, Clean Waters