Taking a New Public/Private Investment Approach to Water Scarcity

November 9, 2016

Martin Doyle expects his year in Washington will pay dividends for conservation, for his students and his research

By Tim Lucas

For much of the past year, Martin Doyle has been on leave from his teaching and research duties at the Nicholas School to serve as senior conservation finance fellow at the U.S. Department of the Interior’s new Natural Resource Investment Center (NRIC).

As an expert on river science and conservation finance, he’s helping guide the center’s efforts to identify new funding strategies and financing options for projects that conserve water resources, protect species habitat, and rehabilitate and modernize aging water infrastructure, particularly in western states.

The center was launched at the White House by Secretary of Interior Sally Jewell in December 2015, and is part of President Obama’s Build America Initiative, which calls on federal agencies to increase private investments in the nation’s vital infrastructure.

“Much of my work at NRIC is focusing on the unsexy but vitally important investments that need to continue to be made in western water,” says Doyle, professor of river science and policy at the Nicholas School and director of the Water Policy Program at the Nicholas Institute for Environmental Policy Solutions.

“Drought grabs our attention, but water scarcity, aging infrastructure and species loss are ongoing, chronic problems and the pot of federal money available to address them is growing smaller and becoming harder and harder to get,” he says. “New approaches that blend public and private investment are essential.”

When his appointment ends this January, Doyle will return to Duke’s campus, bringing with him a wealth of new insights to share with students in his popular Water Resources Planning and Finance course as well as with research colleagues at the Nicholas School, Nicholas Institute and the Duke River Center, where he is a principal investigator.

Dukenvironment caught up with him recently to discuss his work at NRIC, the growing challenges America’s rivers and water infrastructure face today, and the solutions he’s helping to craft.

Q. DUKENVIRONMENT: What interested you in working at NRIC?

A. DOYLE: As water stress increases across the West, spurring private investment in water infrastructure, water markets and species conservation has become critical. Federal funds are drying up. This new center, which is part of President Obama’s Build America Initiative, is making a concerted effort to address this problem by identifying alternative financing options so vital projects don’t have to keep being put off.

Having the chance to part of that as the NRIC’s inaugural senior conservation finance fellow was very appealing.

Q. DUKENVIRONMENT: What’s the most pressing problem you see out west today?

A. DOYLE: Aging infrastructure, without a doubt. Most of the reservoirs, pump stations and other infrastructure being used across the West were built during the early and midtwentieth century. While there is constant updating of infrastructure, there is a lot of infrastructure that is inefficient and needs to be rehabilitated or replaced. We have all this new technology at our fingertips—sensors, big data, real-time monitoring—but few irrigation districts or agencies have the money to retrofit their existing infrastructure to use it, let alone build new canals and pump stations.

From an environmental standpoint, upgrading infrastructure may not sound all that vital, but if an irrigation district in central Washington has to wait 10 or 15 years for congressional appropriations to get money to line a canal or modernize a pump station, that’s 10 to 15 years that we might have low-flow streams and species dying off, in addition to decreased agricultural production.

At NRIC, we’re working with local Bureau of Reclamation offices, irrigation districts and farmers, and saying, “We can work with you to identify different pots of money.”

Q. DUKENVIRONMENT: What ‘different pots of money’ are you pursuing?

A. DOYLE: The first pot is institutional investors—things like pension funds and university endowments. They’re going to be around a long time, so they look for stable investments that will also be around for a really long time and provide steady returns for many years. Investing in a new $50 to $100 million pump station on the Yakima River in Washington, which is one of the projects NRIC has been working on this year, might fit that bill.

The second pot is impact investors. These are the ones who, in theory, are willing to take a lower rate of return in exchange for being able to invest in certain types of environmental change. Out west, that might mean investments that provide infrastructure for irrigation but also provide benefits for conservation by increasing efficiency and keeping more water in the ecosystem.

For the farmers or city that needs the infrastructure, the question becomes, do you wait for federal funding or do you pay higher rates of interest for money from these types of private investors now? It can be a really hard decision, and we work with them so they understand their options of how to use these different sources of capital.

Q. DUKENVIRONMENT: Do you envision a day when private capital could totally replace government funding?

A. DOYLE: No. There’s a role—and a need—for both. Not all infrastructure projects are going to be attractive to private investors. Federal and state investments will always be essential.

“What I do think we’ll see is a greater emphasis on public-private partnerships. For several years now, the federal government has shown growing interest in alternative finance, particularly the potential for using publicprivate partnerships to facilitate infrastructure rehabilitation. At NRIC, we’re working with colleagues at the Bureau of Reclamation, the Army Corps of Engineers, the Department of Agriculture, the EPA, and the White House to develop pilot projects. The White House has made this type of alternative finance a high priority.

Q. DUKENVIRONMENT: Can you cite a success story of this type of alternative finance investment?

A. DOYLE: In 2008, the Bureau of Reclamation worked with stakeholders in Nevada, Arizona and California to build the Warren H. Brock Reservoir on the lower Colorado River to help improve the resilience of the region’s water supply after several years of prolonged drought. Local and state partners provided $172 million in non-federal funding, and Reclamation oversaw environmental compliance and construction. That is, all the money came from non-federal sources, but the management was federal.

The project was completed in roughly two years, which is shockingly fast. It is estimated to save about 22 billion gallons of water a year—meaning that much more water is now available to farms and communities there.

That’s the type of model NRIC is now working to replicate by building relationships with private sector funders, impact investors and other federal, state and nongovernmental partners alike.

Q. DUKENVIRONMENT: Your work at NRIC also focuses on using water markets and mitigation banking programs to achieve conservation goals. How does that work?

A. DOYLE: Because of the novelty of these types of markets and programs, each transaction is a little different.

The buyer can be a city, an irrigation district, a private business, a tribe or a small group of people who have an attorney and a financial advisor. It’s the same on the seller’s side. One side has water it can profit by selling; the other side needs to ensure sufficient water is available in times of scarcity, or to mitigate the impact of future development or other activities. There will also often be a broker who has identified that this transaction might take place. The broker might be a private company or an NGO like The Nature Conservancy.

One of the most successful examples of a water transfer program is the Central Valley Project in California, through which individuals, groups or water districts can transfer all or a portion of their water to other users. More than 130 billion gallons of water are transferred through the program in a typical year. That allows the valley’s limited supply of water to be redirected and delivered where and when it’s needed.

A lot of these transactions take place without significant federal intervention, although recognizing that the infrastructure behind the transactions is often federal. NRIC gets involved when there is a wrinkle and they need the federal government to play a specific role.

We don’t make the deal happen; our role is to be a bridge between all the disparate parties when such a bridge is needed.

We’re now working with states, tribes, NGOs and waters users to explore ways to use their existing infrastructure or their existing water rights for revenue generation, which is really the key necessity for alternative finance, and for water markets.

On top of this, we’re also working with a broad range of potential partners to explore new ways to acquire land for species protection, large-scale river habitat restoration, and the exploding field of conservation and mitigation banking.

Q. DUKENVIRONMENT: It sounds complicated.

A. DOYLE: It is. I’ve taught courses on water finance and western water for a long time, but you know what they say—you don’t really know something till you do it. This fellowship has been a reality check for just how complicated these issues are, from a political, economic and environmental perspective. I have a much more nuanced understanding now, but compared to the people at Interior and Reclamation, I’m still very much a neophyte.

Q. DUKENVIRONMENT: And you’ve probably racked up some serious Frequent Flyer miles, too.

A. DOYLE: Yeah, we’re on planes back and forth to the West pretty frequently. Oregon, Washington, Denver, Phoenix, Las Vegas. Anywhere that water is scarce. Site visits and local meetings are an integral part of the job.

Q. DUKENVIRONMENT: The Nicholas School has quite a few alums at the Department of the Interior and throughout D.C. Have you had a chance to meet or work with them?

A. DOYLE: First meeting, first day, right off the bat, I met an incredible Nicholas School MEM alum, Tomer Hasson, who was Interior’s guru on ecosystem mitigation banking until he recently moved to California to enter private practice. Tomer was one of Dean Urban’s students years ago, and he got in on the ground floor of ecosystem trading.

I’ve also worked with a current MEM student, Samantha Kuzma, who did a Sussman Fellowship at DOI this summer on the role Bureau of Reclamation infrastructure—canals, ditches, reservoirs—play in the purchase and sale of water through water markets. She also worked on an open water data initiative, trying to make water data transparent and accessible to the public.

Q. DUKENVIRONMENT: As you near the end of your yearlong appointment at NRIC, what do you think your greatest accomplishments have been?

A. DOYLE: From a policy and public service perspective, I think we’ve helped facilitate some deals and financing that will make a real difference for conservation and water resilience in the West. We’ve laid a foundation for DOI to build on as it works to expand market approaches to conservation and infrastructure rehabilitation.

From a professional and personal standpoint, it’s been invaluable. I’ve made incredible new contacts and gained a much deeper and more thorough knowledge of how things work in D.C. and in the field—what’s involved in negotiating varied interests when multiple agencies, offices or parties are involved. That’s the type of knowledge that will pay dividends in my research and teaching for years to come.

Tim Lucas is the Nicholas School’s senior writer and director of marketing communications