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Financing of Investments in the Water Infrastructure

Event
Date
Location
Berlin, Germany
Speaker
Jay Benforado

On 17 April 2007, a transatlantic Ecologic Dinner Dialogue was held in Berlin in honour of Jay Benforado, Director of the National Center for Environmental Innovation at the U.S. Environmental Protection Agency (EPA). In his talk, Jay Benforado discussed the financing of water infrastructure in the US, needed investments over the next 20 years and - as he put it himself - his search for an answer to the trillion dollar question: „How to finance 50% of the investments needed, which are currently not covered by revenues“.

The National Center for Environmental Innovation at the U.S. Environmental Protection Agency (EPA) serves as a focal point within EPA for strategic thinking on innovative approaches to environmental management. This includes piloting innovative cross-media environmental strategies, working in creative partnerships with businesses and communities, and engaging in environmental policy studies and dialogues aimed at strengthening the US environmental protection system, amongst other issues promoting sustainable water management.

The water infrastructure in the US is predominantly made up of very small systems - tens of thousands of locally run treatment plants nationwide that produce and distribute drinking water or collect and clean waste water. Ownership and management of these systems is organised in every possible constellation, from public-public to private-private and therefore reorganisation of the water management system as a whole is a very complex issue. On top of that, some challenges make any form of change extra difficult, since there is a general community resistance toward upscaling of systems and a lack of political consensus regarding the question of how to deal with water pricing and lower incomes.

In his talk, Jay Benforado sketched the context in which the above-mentioned trillion dollar question plays a central role - a potential gap between funding needs and spending on water infrastructure at the local and national level. A remarkable side comment was that 10 to 12% of energy consumption in the US is actually connected to water management, a significant issue in the context of climate change and the debate on reduction of CO2 emissions.

The approach to which EPA is committing, in order to tackle the needed shift to a sustainability model for water infrastructure, is their Four Pillars Approach, which consists of the following four key areas for reform and implementation:

  • Better management of water and waste water utilities,
  • Rates that reflect the full cost pricing of services,
  • Efficient water use, and
  • Watershed approaches to protection.

The discussion following the talk of Jay Benforado touched upon several issues in line with the first three pillars of this approach, which are considered the major issues offering financing opportunities and challenges for investments in the water infrastructure. Examples were presented in the discussion illustrating some innovative approaches currently being explored and implemented in Germany and the European Union.

Concerning Better management of water and waste water utilities, the definition of national standards was identified as a generally important framework measure. For instance grey water, which exists in Germany and other EU countries, would be a possible alternative to treating all water up to drinking water standard as is currently done in the US, where often grey water quality would be fully sufficient.

The second pillar: Rates that reflect the full cost pricing of services, is considered both in the US and in Germany a cornerstone in the achievement of sustainable urban water management. In this context, the general consensus was that the rate splitting model with separate surface based fees for storm water (as it exists in Berlin and other European cities), will also work in the US. However, the best way to introduce the concept of split rates and ways to overcome scepticism with the public remain very delicate questions. Concerns about liability, for damages caused due to unsupervised management, should not be underestimated, especially when splitting of rates leads to unmonitored and uncontrolled parts of the water cycle.

Efficient water use is the issue that is closest to public perception and has become the focus of various US community initiatives over the past years. Yet still, success stories like in Seattle and Massachusetts, where the introduction of water metering radically changed the population’s perception and use of water, are exceptions rather than the rule. One important way to make consumers use less water, as was identified during the discussion, is by making them feel they have a stake in the system. Providing the public with insight in and understanding of water prices and their composition, will also help reduce water consumption.

Nevertheless, a decrease in water demand, caused by greater water saving awareness, at worst combined with shrinking communities, could in some areas make costs increase once again. This, because critical retention times of water in infrastructure systems create serious water quality concerns and therefore increased maintenance needs.

It seems like a paradox at first - communities that save water will initially not be rewarded for their efforts, because water prices could very well rise due to higher maintenance costs and redesign measures. However, in the medium-term, a gradual redesign of water infrastructures will be inevitable. And realistically, such a transition on a national scale can only be financed by a system based on full cost pricing. Ultimately, sustainable and adaptable systems will be in place, allowing prices to reach stable levels that are acceptable to the public, and offering opportunities to anticipate necessary changes in water infrastructure systems in future.

The conclusions of this vivid Ecologic Dinner Dialogue are that major changes in financing of the water sector are probably inevitable, as much as some resistance against them. The US can learn from the experiences currently being made in Europe and vice versa, because the stages of development toward sustainable systems in the US and Europe are quite similar. Exchange of information and knowledge will be very useful for both sides of the Atlantic in making the shift toward new approaches. This knowledge transfer will be especially useful in the short-term, in developing ways to overcome public and political opposition and possible resistance to change.

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Speaker
Jay Benforado
Date
Location
Berlin, Germany
Language
English
Keywords
Source URL: https://www.ecologic.eu/2013