Returns on investment in watershed conservation: Application of a best practices analytical framework to the Rio...

Watershed management may have widespread potential to cost-effectively deliver hydrologic services. Mobilizing the needed investments requires credible assessments of how watershed conservation compares to conventional solutions on cost and effectiveness, utilizing an integrated analytical framework that links the bio-, litho-, hydro- and economic spheres and uses counterfactuals. We apply such a framework to a payment for watershed services (PWS) program in Camboriú, Santa Catarina State, Brazil. Using 1 m resolution satellite imagery, we assess recent land use and land cover (LULC) change and apply the Land Change Modeler tool to predict future LULC without the PWS program. We use current and predicted counterfactual LULC, site costs and a Soil and Water Assessment Tool model calibrated to the watershed to both target watershed interventions for sediment reduction and predict program impact on total suspended solids (TSS) concentrations at the municipal water intake-the principal program objective. Using local water treatment and PWS program costs, we estimate the return on investment (ROI; benefit/costs) of the program. Program ROI exceeds 1 for the municipal water utility in year 44, well within common drinking water infrastructure planning horizons. Because some program costs are borne by third parties, over that same period, for overall (social) program ROI to exceed 1 requires delivery of very modest flood and supply risk reduction and biodiversity co-benefits, making co-benefits crucial for social program justification. Transaction costs account for half of total program costs, a result of large investments in efficient targeting and program sustainability. Co-benefits justify increased cost sharing with other beneficiaries, which would increase ROI for the utility, demonstrating the sensitivity of the business case for watershed conservation to its broader social-economic case and the ability to forge institutional arrangements to internalize third-party benefits.