Photograph showing debris in an urban water drainage channel
Dealing with sediments in urban water systems can be costly. Environmental Impact Bonds ensure that those costs are budgeted for and steps are taken to reduce them. Credit: Brand et al. [2020], Figure 5 inset and Figure 8
Source: Water Resources Research

Soil erosion, poor water quality, and degraded ecosystems pose significant management challenges. Oftentimes, the key issue is not a lack of understanding about what is needed to address these problems, but the inability to finance solutions at the scale that is needed to be effective. Financial barriers may be cash flow limitations, political constraints, legal constraints, or other factors.

Environmental impact bonds (EIBs) are a new form of financing capable of overcoming institutional and cash flow barriers: investors provide the capital required for comprehensive watershed interventions, which is repaid over time with interest by stakeholders who experience a reduction in management costs, or savings.

Brand et al. [2020] describe a modeling method for determining a fair interest rate and return period to reward investors for the risk that interventions fail. After presenting a formulation of the method, the authors apply it to a sediment management problem at the United States—Mexico border and show the feasibility of an EIB for several possible interventions. They also report general strategies for making EIBs feasible.

Citation: Brand, M., Gudiño‐Elizondo, N., Allaire, M., Wright, S., Matson, W., Saksa, P. and Sanders, B.F. [2020], Stochastic Hydro‐Financial Watershed Modeling for Environmental Impact Bonds. Water Resources Research, 56: e2020WR027328.

—Jim Hall, Editor, Water Resources Research

Text © 2020. The authors. CC BY-NC-ND 3.0
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