Designing a Credit Market for Stormwater Management

Heavy rains and flood waters flow across the impervious surfaces of roads and parking lots. That flow pushes pollution on those surfaces–plastic bottles, cigarette butts, motor oil–into stormwater management systems. That pollution then dumps into lakes and streams. This system is how so much plastic ends up in our oceans.

Who is responsible for fixing this broken interaction between different types of social goods: private developers, water districts, transportation departments? Can marketing-based solutions span all parties and fix the problem?

Putting a Price on Stormwater

Marketing the social good requires strong systems thinking, and sometimes you need to address a system-of-systems. In the case of stormwater management, the separate systems of land use, water management, and transportation infrastructure are working individually as designed.

However, together they create a system of urban hydrology with the unintended and unwanted consequence of ultimately polluting our oceans.

Communities are increasingly turning to pricing solutions like taxes and credit markets to improve their stormwater management. Pricing is one of the core functions of marketing.

Taxing Stormwater Runoff

Washington DC was famously built on a swamp. As that swampland has been paved over, stormwater flows across hard surfaces instead of seeping into the ground.

A recent Nature Conservancy article describes how communities like DC are using pricing to fix this pollution problem.

DC now taxes property owners on the total area of hard, impervious surfaces on their land. The revenues generated from the tax go to fund projects to mitigate the pollution problems caused by stormwater runoff.

The cost of the tax also motivates landowners to redesign their landscapes to retain more stormwater.

Giving Credits For Stormwater Management

DC has taken an additional, pricing-based step towards addressing stormwater management.

They’ve established a credit market based on the ability to absorb storm runoff. Property developments now need to retain a certain amount of stormwater onsite. If they can retain more than their fair share, they get credits for their good work. They can then sell their credits to other developers who can not or choose not to meet their stormwater retention requirements.

The city has committed funds to help establish this credit market. For the first 12 years of the market, they will buy credits if no other bidders come forth.

Craig Holland, an economist with The Nature Conservancy, thinks this is a win-win situation for DC:

It is cheaper to develop credits compared with what developers often pay for on-site compliance. “This means the market is working…Developers are saving money, communities are getting more green space, we’re achieving conservation results, and the District is meeting its obligations.”

Pricing Isn’t the Only Tool

Washington DC isn’t the only community applying pricing to water. California and Australia are building more efficient markets for buying and selling water.

Beyond pricing, communities can, and should, consider other marketing functions to address stormwater management. For example,

  • Designing better stormwater interactions between buildings, roads, and parking lots.
  • Promoting information and action about littering, pollution, and stormwater management to improve behavior.
  • Distributing public sanitation and stormwater management capabilities more effectively.

(Image courtesy of Wikimedia)

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