Barton H. Thompson,
Stanford Law School
The Importance of Watershed Preservation
long have recognized the importance of preserving key
watershed lands. When Congress formally authorized the
creation of national forests in the Organic Administration
Act of 1897, it naturally hoped that national forests
would provide a "continuous supply
of timber for the use and necessities" of the nation.
But to Congress, the first purpose of national forests was
"securing favorable conditions of water flows."
When cities began to import water in the 19th and early
20th centuries, they frequently and for good reason chose
areas that were protected from logging and other forms of
development (e.g., San Francisco's choice of the Hetch Hetchy
Valley in Yosemite National Park as the site of its major
water reservoir) or took active steps to protect the land
(e.g., creating the Adirondacks "forever wild" preserve
in New York).
Watershed preservation remains of importance
today to both water quantity and water quality. On the water
quantity front, watershed preservation can help ensure a
steadier, and thus more readily captured and stored, supply
of water in surface waterways. More importantly, watershed
development can increase sedimentation that in turn can
reduce the storage capacity of existing surface reservoirs.
Watershed preservation may be of even greater value to groundwater
yield. In paving over watersheds, development reduces groundwater
recharge both by redirecting water flows and impeding filtration.
One study by American Rivers, NRDC, and Smart Growth America
estimated that development in the United States between
1982 and 1997 reduced annual recharge by hundreds of billions
of gallons per year. The annual loss in groundwater in the
Washington, D.C. metropolitan area was estimated to be as
high as 55.6 billion gallons. The study concluded that large
losses also were incurred in regions surrounding Charlotte
(up to 31.5 billion gallons), Greenboro, N.C. (15.7 billion),
Greenville, S.C. (29.5 billion), and Raleigh-Durham-Chapel
Hill (21.9 billion).
Recent years have seen significant discussion
of the importance of watershed preservation for water quality.
When land in the vicinity of a surface waterway is developed,
the uses to which the land is put frequently add contaminants
to the waterway. Nonpoint pollution, in the form of runoff
from agriculture, livestock operations, construction sites,
parking lots, roads, and other uses, as well as the leaching
of waste from septic tanks, is today the major threat to
the nation's surface waterways. Undeveloped land, moreover,
frequently helps reduce contamination. Both wetlands and
soils filter out nutrients and other contamination from
runoff before the runoff reaches the main course of a waterway.
Vegetation slows down runoff, permitting solid pollutants
to settle out, and stabilizes soil, thus reducing contamination
from siltration. Land preservation thus performs double
duty in protecting surface water quality: it eliminates
a major source of contamination, while also protecting the
waterway from those nonpoint sources of contamination that
do exist. Development also increases the contamination threat
to groundwater aquifers.
Natural Capital Versus Technological
There are technological fixes to the
various problems that watershed development can bring. If
sedimentation reduces surface storage capacity, for example,
the government can dredge the reservoir, raise the dam level,
or turn to other water sources. If groundwater recharge
drops, water users can mine the aquifer by pumping to ever
greater depths or again seek out alternative water supplies.
If watershed development leads to water contamination, water
suppliers can filter the water. As a result of the fallout
from prior development, many of these solutions (e.g., water
filtration) already are ubiquitous.
Yet these technological
fixes often are inferior to the "natural services" that
intact watersheds provide. First, the technological fixes
often do not solve the entire problem. Filtration systems,
for example, do not treat all contaminants. Second, technological
solutions typically are very expensive. Based on the
experience of a number of U.S. cities, Walter Reid has
estimated that every dollar used to protect existing
watersheds can save anywhere from $7.50 and $200 in water
treatment costs. Dredging, dam expansion, and water importation
are all similarly costly. Third, technological fixes
frequently raise serious environmental concerns. Groundwater
mining not only will ultimately exhaust the resource,
but in the interim can lead to subsidence, desertification,
salt water intrusion, spreading contaminant plumes, and
biodiversity loss. Dam expansion can lead to further
land loss and stream modification, while new water imports
bring all of the traditional environmental problems of
water supply projects. Finally, watershed preservation
can provide a variety of positive externalities such
as biodiversity protection, open space, and even carbon
In summary, natural capital (in the form
of watershed services) and technological investments (in
filtration facilities and other engineering solutions) are
substitutes. And despite their ascendancy in the 20th century,
technological investments in many cases are the inferior
means of providing water supply and quality. An important
question therefore is how key governmental and private players,
including water suppliers, developers, land use planners,
and environmental regulators, evaluate the choice between
natural capital and technological investments. Is there
a bias in favor of technological investments due to existing
governmental policies, institutional structures, market
imperfections, scientific uncertainties, or problems in
valuing the natural watershed services? And if a bias exists,
how can the United States eliminate that bias? How, in short,
can we get the market for natural services to work correctly?
Or is regulation the only policy solution?
New York City and the Catskills
In recent years, a number of ecologists
and economists have touted New York City's efforts to preserve
the Catskills watershed, one of three major basins from
which the city obtains its water supply. In the view of
these proponents, New York City's preservation efforts show
that natural services can attract investment. In my presentation,
I plan to focus on whether and how the United States can
encourage water suppliers to invest in economically efficient
watershed protection. New York City's experience is a good
starting point for this discussion, so here I will quickly
summarize New York's efforts and raise some of the interesting
issues posed by those efforts.
In the late 1990s, New York City embarked
on a $250 million program to acquire and preserve up to
350,000 acres of land in the Catskills watershed. A combination
of federal regulation and cost realities drove New York
City to this program. Under the federal Safe Drinking Water
Act, municipal and other water suppliers must filter their
water supplies unless they can demonstrate that they have
taken other steps, including watershed protection measures,
that protect their customers from harmful water contamination.
Presented with a choice between building a filtration plant
and preserving the watershed, New York City easily concluded
that the latter was more cost effective. New York City estimated
that a filtration plant would cost between $4 billion and
$8 billion to build and another $300,000 annually to operate.
By contrast, watershed protection efforts, which would include
not only the acquisition of critical watershed lands but
also a variety of other programs designed to reduce contamination
sources in the watershed, would cost only about $1.5 billion.
As an empirical question, are New York
City's efforts anomalous, or are they an example of a growing
interest in preserving watershed lands for water quality
purposes? The bottom line is that we do not know, and I
and several colleagues are just embarking on a research
project designed to find out. In the late 1990s, EPA estimated
that more than 140 cities were considering watershed conservation
as a means of ensuring high drinking water quality. Few
of these efforts, however, appear to come close in scale
or importance to New York City's preservation actions. Water
suppliers in a few areas of the country, moreover, actually
are divesting themselves of watershed lands.
helped make New York City's decision to preserve watershed
lands relatively easy and help to identify the potential
obstacles to duplicating New York's efforts elsewhere.
First, New York City is the dominant beneficiary of Catskills
preservation efforts. New York both draws sizable quantities
of water from the Catskills and dwarfs all other cities
drawing drinking water from the watershed. As a result,
New York City gets virtually the entire benefit in improved
water quality of its preservation efforts. A smaller
city that draws on only a small portion of the supply
from a watershed would face a tougher choice because
only a fraction of the water-quality benefits from land
preservation would go to it. In deciding whether to acquire
land on its own, a smaller city might decide that the
benefits were not worth it, and efforts to forge a coalition
with other water suppliers drawing water from the same
watershed might fail as a result of free-rider problems.
Second, in deciding to protect the Catskills watershed
rather than build a filtration plant, New York City benefitted
from century-old regulatory authority over the watershed.
New York City is protecting the watershed partly through
land acquisition and preservation and partly through
local land-use incentive programs, but also through regulation
of local uses. Whether New York City would have found
it worthwhile to protect the watershed through economic
means even if it had not enjoyed the regulatory power
is an unaddressed question. Third, most of the land that
New York City has slated for preservation is in areas
that are still not highly populated and thus is not astronomically
expensive. Significant differences in land prices could
change the cost-benefit equation for deciding whether
to acquire and preserve the watershed land. Finally,
the federal government put the city to a choice: protect
the watershed or build an extremely expensive filtration
plant. It is questionable whether New York City would
have chosen to protect water quality by protecting the
watershed absent that federal pressure.
The latter point raises perhaps the key
policy question: how can governmental policy help promote
water-quality motivated investments in watershed preservation?
The government can start by forcing water suppliers to take
water quality seriously through regulatory schemes such
as the Safe Drinking Water Act. Although consumers might
prize safe drinking water, they also savor low water rates
and might not be willing to support a rate increase needed
to purchase land that would promise water quality services.
The government also must not favor technological investments
over natural solutions. New York City chose to protect the
Catskills watershed because EPA gave it a choice between
a filtration facility and watershed efforts. If EPA had
required New York City to build the filtration facility,
the city might not have concluded that any additional water-quality
benefits from protecting the watershed were worth the cost.
Governments similarly must ensure that any funding aid provided
to water suppliers can be spent on either technological
or natural efforts to promote water quality. Although EPA
has extended its revolving loan program for water quality
investments to land acquisition, EPA prohibits states from
spending more than 10 percent of its loan moneys on the
acquisition of fee simples or conservation easements.
regulations sometimes may also influence water suppliers'
decision whether to acquire and preserve watershed lands.
Consider, for example, the rate setting system used by
public utility commissions to determine how much private
water companies can charge for their services. In most
cases, water rates are set to permit companies a specified
rate of return on the total capital invested in their
business. Land is typically included in the rate base,
but at original cost. Where a water supplier purchased
watershed lands in the distant path, the land might be
worth far more today than its value in the rate base encouraging
the water supplier to find a way to sell the land and
capitalize on the land's increased value. This phenomenon
might partly explain why a number of Connecticut water
companies have sold off watershed lands in the last decade.
Indeed, the Connecticut Department of Public Utility
Control, whose mission includes reducing the water rates
that consumers pay, sometimes has encouraged the water
companies to sell such lands and then use part of the
proceeds to lower their water rates.
A third issue
is whether we currently have the scientific and economic
knowledge needed to determine the natural water-quality
services provided by particular watershed lands and to
value those services. A number of scientists have studied
the water quality services provided by watershed preservation,
but the science is still fairly rough and ready. New
York City has chosen which land to preserve based on
geography and the "travel time" that it would
take runoff from the land to reach the city's water supply.
In order to convince water suppliers and their customers
(or government regulators) of the benefits of natural
capital rather than technological investment, moreover,
economists may need to be able to value the water quality
improvements that watershed preservation can supply.
A final issue
of relevance is the degree of "ecosystem synergy" that
is gained when water suppliers acquire and preserve watershed
land for water quality purposes. Does the preservation
efforts just ensure higher water quality, or do they
also provide other valuable ecosystem services? It would
be nice, for example, if the same land that water suppliers
choose to preserve for water quality purposes also is
high in biodiversity or serves as habitat for endangered
species. We do not have enough information at the moment,
however, to know whether this is the case. Worse, the
water quality motives that drive water suppliers to acquire
and preserve watershed lands might conflict in some situations
with other public goals. Given their water quality goals,
for example, many water suppliers do not permit public
access to or use of watershed lands owned by the suppliers.
Where this is the case, public recreational interests
conflict with the water quality goals. Emphasis on one
ecosystem services undermines the provision of another.
M. Olin Conference on Watershed Management
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