Why Denver Spends Water Fees on Trees

Denver Water delivers clean drinking water to more than 1.3 million people spread across more than 335 square miles, and most of that water comes from rivers and reservoirs that capture run-off from forest-covered hills in clearly-delineated watersheds. The forests both protect the steep slopes from erosion and regulate the flows of water by mopping it up and then releasing it slowly over time.

And therein lies the problem: Climate change has extended summers in Colorado just enough to give the northern pine beetle the comfort it needs (PDF) to multiply like never before. The bug has taken full advantage, devouring bark at a rate 10 times higher than ever recorded, killing trees and leaving them scattered like kindling for wildfires.

And those fires now take hold with increasing frequency, reducing the forest to lumps of silt and sludge. Lush slopes degenerate into unstable masses of goo. The water upon which the city depends becomes muddy and irregular, which makes it more difficult -- and expensive -- to assure people they can turn on their faucets and trust the drinking water that comes out.

Enter the U.S. Forestry Service (USFS), which is charged, in part, with ensuring clean headwaters by maintaining healthy forests.

Both the USFS and Denver Water are struggling to meet their budgets in the face of these challenges, so in August the Forestry Service's Rocky Mountain office cut a $33 million deal with the Denver utility to proactively manage 38,000 critical acres in five key watersheds -- if Denver Water comes up with half the money.

Denver Water took the offer, despite -- or perhaps because of -- its own struggles with a slew of disaster-related expenses, including a $40 million bill to remove silt and mud from a reservoir in just one wildfire-damaged watershed.

Convinced that spending money now will save money in the long run, the utility agreed to finance the removal of dead trees and the extermination of beetles in sensitive areas with steep slopes and other key features by implementing water fees that will amount to about $27 dollars per household over the next five years.

Payments for Watershed Services

This type of targeted spending is typical of Payment for Ecosystem Services (PES) schemes, which aim to finance the preservation of nature by recognizing the economic value of nature's services, and then convincing beneficiaries of those services to pay those who deliver them. Such schemes offer more transparency and accountability than do normal governmental structures -- a key selling point in any economic climate.

In this case, the ecosystems are the watersheds being protected, and the ecosystem service is the provision of water.

Opportunity for Rural Poor

A recent study published by Ecosystem Marketplace found that cash-strapped governments around the world are using similar schemes, dubbed "Payments for Watershed Services," to balance economic and ecological challenges. The report, "State of Watershed Payments: An Emerging Marketplace," documents nearly 300 programs involving nearly $50 billion in transactions over twenty years in countries as diverse as China, the United States, Brazil and Australia – with $10 billion of that coming in 2008 alone and 2009 not yet fully accounted for.