• Open Access

Water neutrality: A first quantitative framework for investing in water in South Africa

Authors


Correspondence
D.C. Nel, Private Bag X2, Die Boord, 7613;
Tel: +27 (0)21 8882835; fax: +27 (0)21 8882888.
E-mail: dnel@wwf.org.za

Abstract

The concept of water neutrality, based on its carbon equivalent, was first coined during the World Summit on Sustainable Development in 2002. Since then the term has been loosely used, with little quantitative validation. Here we present a first quantitative framework for a water-neutral scheme that allows a private water user to balance its water account through both demand- and supply-side interventions. Such innovative voluntary mechanisms can provide benefits in a chronically water stressed and developing country, such as South Africa. This scheme seeks to harness private sector investment in water security, by allowing investors to balance quantitatively their water account based on sound scientific rationale. Investors are required to engage in a three-step process of: reviewing their water usage, implementing a reduction strategy, and replenishment of water to hydrological systems through the investment in watershed services, equivalent to their water usage. Initially, the scheme allows participants to replenish quantitatively their water usage through investment in the clearing of water-intensive invasive alien plants. The project, however, encourages the innovation and development of further quantitative mechanisms for investing in watershed services, and proposes an operational model for the promotion of a water-neutral market in South Africa.

Introduction

Payment for ecosystem services (PES) can play an important role in achieving conservation objectives and sustaining ecosystem health, especially in developing countries where budgets for traditional conservation approaches are rarely sufficient. In these countries, innovative approaches that link conservation and economic development objectives in a financially sustainable manner can deliver considerable benefits.

A more recent focal area for PES has been payment for watershed services (PWS) (Landell-Mills & Porras 2002; Porras et al. 2007; Wunder et al. 2008). Watersheds provide a wide range of services to societies that span provisioning, regulating, supporting, and cultural services (Millennium Assessment 2005; Smith et al. 2006). However fundamentally, watersheds provide water, which underpins the functioning of ecosystems, societies, and economies. The availability of clean fresh water is a growing global issue and it is estimated that currently around 2.2 × 109 people live in river basins that are under severe water stress (defined as basins with a withdrawal-to-availability ratio of >0.4). This number could grow to more than 4 × 109 people in the 2020s, with developing countries being most heavily impacted (Alcamo et al. 2007). With developing country governments facing some of the greatest challenges concerning water stress in the near future, as well as the most serious financial constraints, voluntary market-based approaches such as PWS will play an important role in supplementing traditional management approaches. Indeed, 67% of the 61 PWS case studies described by Landell-Mills & Porras (2002) were located in developing countries. Furthermore, a recent global survey of 150 PWS schemes showed that more than 80% of PWS schemes in poorer countries (<US$ 20,000 GDP per capita) were voluntary, while more than 70% of PWS schemes in wealthy countries (>US$ 30,000 GDP per capita) were regulatory (M. Kieser, personal communication). Notably, voluntary PWS schemes trading in water supply services, appear to trade almost exclusively with proxies for water supply (e.g., hectares of forest protected or restored) and not in water itself (Landell-Mills & Porras 2002).

Water neutrality

It was within this context that the concept of water neutrality was conceived at the World Summit on Sustainable Development (WSSD) in Johannesburg, South Africa during 2002. While based on the carbon-neutral concept, water neutrality has hitherto not been accurately defined, and, for the most part been loosely used in the so-called gray literature and in commitments by large corporations and government agencies. While these commitments are indeed commendable, the term lacked substance and was used only qualitatively. Proponents admit that they were not able to substantiate these claims quantitatively (http://www.thecoca-colacompany.com/presscenter/nr_20070605_tccc_and_wwf_partnership.html).

We define the term “water neutrality” to imply a voluntary process whereby participants seek to balance quantitatively their water use accounts by both reducing their water usage and investing in projects which increase supplies of clean fresh water. Water neutrality therefore implies balancing the demand and supply of water through a deliberate intervention by the water user. Here we present a practical example of a “Water-Neutral Scheme” developed in South Africa, in which participating investors are able to substantiate quantitatively their status as “water neutral” on the basis of scientific rationale.

Water in South Africa

Water availability is one of the most decisive factors that will affect the future economic development of South Africa (Scholes 2001; Ashton 2007; DWAF 2008; Turpie et al. 2008). South Africa is a chronically water stressed country with between 500 and 1,000 m3/person/year available (Ashton 2002). In 2000 (the latest available published figure), South Africa's water surplus (unused available water) was only 1.4% of the country's total water supply, and it is estimated that based on the current scenario, South Africa will have a water deficit of 1.7% by 2025 (DWAF 2004a).

In the past, South Africa has invested heavily in water infrastructure and this is, in part, why the country has enjoyed a false sense of water security (Ashton et al. 2008). However, the country is fast approaching full use of available surface water yields, and is running out of suitable sites for new dams (Turton & Ashton 2008; DWAF 2008). Superimposed onto this, climate change models predict changes to both rainfall and temperature in southern Africa, which will affect water storage negatively (DWAF 2008). Despite this, the country still faces development challenges that will need more water. These include the overarching need for economic growth, adaptation to demographic changes and urbanization (which is leading to intense local pressure on water resources), redistribution of water allocations to redress inequities of the past, and increased pressure on the agricultural sector to provide more food and biofuel (DWAF 2008). Moreover, South Africa's legal framework is progressive in requiring water to be made available for “basic human needs” and to maintain “ecological functioning,” together known as the “Reserve,” prior to allocation for other purposes (National Water Act 1998). However, increased demand for water is already resulting in this progressive aspiration being compromised (Ashton 2007). This has resulted in more than 80% of South Africa's rivers being classified as threatened (Nel et al. 2007), with the spread of invasive alien plants, destruction of riparian zones and wetlands, and disruption of connectivity, accentuating these impacts (Roux et al. 2002).

In short, South Africa needs to think innovatively about new ways of making water available outside of the traditional engineering solutions of supply-side infrastructure development if it wishes to sustain growth and meet legislative requirements in terms of the “Reserve.” This will include making water available through both demand- and supply-side mechanisms and an integrated effort between government, the private sector, and civil society.

Demand management

There are generally low levels of awareness about South Africa's precarious water situation among the general public and the private sector, fuelled by the false sense of water security that has prevailed due to water infrastructure development. This is ironic given the fact that South Africa's economy as a whole, and almost every private sector enterprise in South Africa will be negatively affected by pending water shortages. Low awareness has in turn led to inefficiencies in water use in South Africa (DWAF 2004a). Clearly, greater awareness and incentives need to put in place to drive more efficient use of South Africa's limited water resources.

Supply management

With options for dams almost fully exploited (DWAF 2008), a paradigm shift is required from a one-dimensional engineering view to a more holistic view of water supply management that incorporates ecological thinking. Wise management and restoration of freshwater ecosystems can benefit water quantity, flow regulation, and water quality. One such example of ecological supply-side management is the removal of water-intensive invasive alien plants and the restoration of riparian and catchment habitats (Blignaut et al. 2007; Turpie et al. 2008).

A number of studies have detailed the impact of invasive alien plants on water runoff and yield in South Africa. Versfeld et al. (1998) estimated the incremental water use of invasive alien plants to be 3,300 million m3, or 6.7% of the national mean annual runoff. Cullis et al. (2007) estimated that invasive alien plants in mountain catchment areas and riparian zones alone result in a 695 million m3 loss in yield, or 4.1% of the registered total water use; if not controlled, this could increase to 16.1%. In response to this threat, South Africa established its “Working for Water” program in 1995 under the leadership of Professor Kader Asmal, then Minister of Water Affairs and Forestry. The program has multiple objectives of reducing the impact of invasive alien plants on South Africa's water supplies, improving productive potential of land, restoring biodiversity and ecosystems function, as well as creating jobs and economic empowerment (DWAF 2004b). By the end of 2007, the program had cleared 1.96 million hectares of invasive alien plants and creates some 30,000 employment opportunities per annum. In 2006, it was estimated that these efforts were resulting in the release of 48–56 million m3 of water per annum (DWAF 2006).

Despite the obvious benefits of this program to water security and hence private sector interest, this program has been funded almost entirely from government's poverty relief and public works expenditure programs. The South African Water Neutral Scheme provides a practical, yet scientifically quantifiable mechanism for private sector investment in this important program, and thereby the water security of the country.

Approach

The South African Water Neutral Scheme is a partnership between civil society (through WWF South Africa), and government (through its Working for Water program), research institutions, and the private sector. The investment in water neutrality is done through a three-step process (known as R3) of:

  • 1Review: Participants are required to undertake a detailed water audit to measure their operational water usage accurately. The results of this audit, known as the company's “water deficit,” need to be publicly available to promote transparency and open dialogue.
  • 2Reduce: In partnership with WWF South Africa, corporations are required to develop and implement an ambitious, but realistic, time-bound water reduction and efficiency strategy.
  • 3Replenish: Corporations are then required to invest in PWS projects that will make available “new” water into freshwater ecosystems, equal to their “water deficit” (i.e., the net outcome of Steps 1 and 2). While we believe that there may be numerous projects that could quantitatively deliver “new” clean water, we have first concentrated our efforts on the quantification of water made available through the removal of invasive alien plants. The large amount of data available on the topic through the current and historic experiences of the Working for Water program made this an obvious first choice. To facilitate the calculation of how investments need to be made for a given corporation to become water neutral, we have developed a “Water-Neutral Calculator.”

We are cognizant that the operational water usage of an enterprise is only but a portion of its total water footprint and that much of the impacts on water supplies can be hidden in the supply chain. For now we have concentrated on operational water usage, as it will be impossible for a large corporation to achieve water neutrality for its entire footprint through an investment made only by itself. We trust that this initiative will serve as an entry point for a corporation to engage with its supply chain on water issues and perhaps to ensure total supply chain water neutrality over time.

Water-Neutral Calculator

The Water-Neutral Calculator determines the investments that a company needs to make to become water neutral through the removal of invasive alien plants. The calculator is based on two principal input values: (1) the average amount of water “replenished” through the clearing of a hectare of invasive alien plants and maintaining it in a rehabilitated state; and (2) the average cost of clearing a hectare of invasive alien plants and maintaining it in a rehabilitated state.

We used the results of Le Maitre et al. (2002) to calculate the average amount of water that is replenished to our water supplies following the clearing of invasive alien plants. This study calculated the water losses due to invasive alien plants in four catchments across the country that can be considered broadly representative of the main climatic conditions, vegetation types, and invasive alien tree species (Table 1).

Table 1.  Water use by invasive alien trees in four representative catchments in South Africa
CatchmentOriginal vegetation typeClimate and rainfall seasonMain invasive tree speciesWater use
  1. Source: Adapted from Le Maitre et al. (2002).

SonderendRenosterveld & fynbosWarm temperate, winterPine (Pinus pinaster), Hakea (Hakea sericea), Black wattle (Acacia mearnsii)1,856 m3/ha/year
KeurboomsFynbos, Afromontane forestWarm temperate, all yearBlack Wattle, Hakea, Pine1,776 m3/ha/year
Upper WilgeGrasslandCool temperate, summerEucalypts & Acacia spp.4,239 m3/ha/year
Sabie-sandsBushveldTemperate to subtropical, summerEucalypts & Pines2,192 m3/ha/year
Weighted average   2,076 m3/ha/year

We used data from Marais & Wannenburg (2008) on the costs of clearing Acacia, Eucalyptus, and Pinus species as representative of water-intensive invasive alien trees in South Africa, but have allowed for inflation increases since 2005–2006. We assumed that clearing costs for medium-sized sprouting species, including Salix, Jacaranda, and Prosopis, would be in the same order as Acacia. The large resprouting species dominated by Eucalyptus also include Populus and Melia, while Pinus represent nonsprouting tree invaders. Baseline clearing costs are therefore assumed to be the weighted average costs for the above three categories (Figure 1). Costs vary according to the level of infestation; however, we have once again opted to use average costs to deliver a nationally consistent price based on a condensed hectare equivalent (i.e., if the invasive alien plants in a specific area is condensed to a closed canopy stand, it will represent the condensed hectares).

Figure 1.

Estimated average weighted clearing costs per condensed hectare for invasive alien tree species for years 1–20 clearing and ongoing maintenance treatments. Source: Adapted from Marais & Wannenburgh (2008).

Calculating the investment required to become water neutral

The number of hectares of invasive alien trees that a water user would need to finance to be cleared to become water neutral is therefore calculated by dividing the water user's “water deficit” by the average amount of water replenished through the clearing of a hectare of invasive alien trees (2,076 m3/year). Once a hectare of infested land has been cleared it will continue to deliver “new” water into the system as long as the land is maintained in its rehabilitated state. The cost of initial clearing (year 1) treatment and follow-up maintenance treatments (years 2–20) is calculated according to the costs shown in Figure 1.

Water users may choose how they wish to structure their water offsets over the first 10 years of the minimum 20-year investment period. For example, one corporation may decide to offset their water deficit at 10% a year over 10 years, while another may wish to engage more aggressively toward becoming water neutral. Only investors that have completely offset their water deficit can claim to be water neutral, while those formally engaged in the project can claim to be “in the process of becoming water neutral,” providing some incentive for more aggressive investment.

Payments are then calculated using a matrix model constructed in Microsoft Excel. Annual payment for a given corporation in a given year will thus be calculated as:

image

where t= the year of the project, with an investment horizon of 20 years, and n= the initial clearing and ongoing management treatments for N= 20 treatments.

We have chosen a 20-year investment period as the minimum time frame in which investors will need to engage in the program. This was chosen to ensure continuity and maintenance of cleared sites, while taking into account the longevity of seed banks of invasive alien trees. Costs are discounted to allow for inflation rate. The model is also iterative over time, allowing calculations to adapt for water savings made through improved water efficiency (i.e., step 2 of the R3 process) over the lifespan of the investment.

Social benefits

Based on Working for Water data, we estimated the social benefits that would be created by water-neutral investments, such as the number of employment opportunities created and number of local beneficiaries that would be positively affected (Table 2). While these benefits may not appear to be of explicit environmental importance, their importance from a socio-political point of view in terms of the South African developing economy context cannot be over-estimated.

Table 2.  Average employment and beneficiary days created per hectare of invasive alien plant infestation cleared and maintained
 Person days/hectare
Year 1Year 2Year 3Year 4Years 5–20
  1. aBased on five beneficiaries per employee.

 Initial clearing treatmentFollow-up and maintenance treatments
Employment28.92  7.09  3.78 0.46 0.32
Beneficiariesa144.6  35.518.92.31.6

Illustration of the model

To illustrate the model we have used hypothetical numbers of a company with a water deficit of 5,000,000 m3/year and wishing to become water neutral by offsetting their water deficit at 10% per annum over 10 years. Based on the model, the company will need to make a R 34,354,894 (US$ 4.6 million at an exchange rate of R 7.5:US$) investment over 20 years, which will ensure the clearing, restoration and maintenance of approximately 2,408 condensed hectares of invasive alien plant infestations. This activity will create 94,689 employment days and 473,447 beneficiary days. The structure of the payments and benefits over 20 years are illustrated in Figure 2.

Figure 2.

A summary of the 20-year investment and benefits created by a hypothetical company with a water deficit of 5,000,000 m3 and wishing to become water neutral by offsetting its water deficit at 10% per annum over the first 10 years.

Discussion

To our knowledge, this study represents one of the first examples of a water-neutral scheme that quantitatively balances a water user's accounts through investments in both demand- and supply-side management. Within the context of a chronically water stressed developing country with economic and social development challenges, the South African Water Neutral Scheme holds much promise of providing environmental, economic, and social benefits through a voluntary market-based mechanism. The total annual amount of water used by industrial and urban users in South Africa, the main target market for this scheme, is estimated to be 3,652 million m3 (DWAF 2004a). Interestingly, this amount is similar to the 3,300 million m3 of water used by invasive alien trees estimated by Versfeld et al. (1998). Therefore, even a 10% market uptake of this scheme could deliver increased water security, better control of invasive alien trees, biodiversity restoration, and employment creation. Importantly, the scheme will supplement efforts to address four of the main threats to the integrity of South African rivers, namely, impaired water flows, the spread of invasive alien plants, destruction of riparian zones, and disruption of connectivity (Roux et al. 2002). Further development of other water-neutral products (e.g., to the restoration of wetlands), could further extend its biodiversity benefits.

Two major South African corporations, South African Breweries Ltd. (a large water user) and Sanlam (a leading financial services institute) have already committed to becoming water neutral through this scheme. Professor Kadar Asmal, founding father of the Working for Water program and previous Minister of Water Affairs and Forestry, is the patron of the scheme. The scheme has therefore made an auspicious start to an ambitious undertaking.

Challenges for the South African Water Neutral Scheme

Moving from a poverty alleviation project to real PWS.

The dual objectives of the Working for Water program of poverty alleviation/economic empowerment (through job creation) and improving water security has been contentious (Turpie et al. 2008). While the poverty alleviation objective has been the raison d'être for strong government support over the years, some feel this has detracted from its second objective (Wunder et al. 2008). We believe that through subtle changes in contractual arrangements we can bring a closer alignment between these objectives and the development of a more PWS-like model. The Water Neutral Scheme will thus contract clearing teams or private landowners to keep areas clear of invasive alien plants as opposed to the clearing of invasive alien plants. The subtle difference is important in that it will now closely link the well-being of the contracted party with the provision of watershed services, and not merely a physical job of work.

Assurance of delivery of local and national water benefits.

It is recognized that the data used to calculate water benefits from clearing and rehabilitation (Table 1), although broadly representative for the country, are crude at the local scale. In other words, the true water benefits delivered at the local scale may vary from the weighted national average. This will therefore require either that the national figure is accepted as a standardized proxy of the water benefits generated by the scheme and refined over time as more information becomes available, or that real water benefits are measured with each local-scale project. It is suggested that the former may be the most practical way to proceed in the early stages of this project, but that the project is used to generate more data that may refine these estimations of water benefits. It will also be important that the scheme maintains a national accounting system that is able to quantify its water benefits at a national scale.

Broader recognition of water investments orcredits.”

It is recognized that this voluntary PWS mechanism operates within a broader regulatory water governance system within which the rules may change. Investors will require that their investments into water management are recognized and guaranteed in face of such potential changes. For instance, should the government in the future require mandatory full-cost payment for clearing of invasive alien trees as part of the water price (Blignaut et al. 2007), participants in this scheme will require recognition of their prior voluntary contributions.

Developing additional quantifiable water-neutral products.

As a start, the scheme will offset participants’ water use through the investment in the watershed services provided by the clearing of invasive alien trees. However, the scheme will need to be able to provide a suite of products if it wishes to attract broad investment (see below).

Developing and maintaining an adaptive institutional framework.

Currently, the main partners in this initiative are WWF South Africa, Working for Water, and the founder private sector investor, South African Breweries Ltd. We believe that successful implementation of this project will require an operational framework comprised of four components: (1) innovation and development of new quantifiable water-neutral products (e.g., rehabilitation of wetlands or agricultural land-use practices), (2) marketing and sales of products to prospective buyers, (3) implementation and monitoring to ensure delivery and measurement of benefits, and (4) public and consumer awareness of the importance of wise water management with the aim of driving market appetite for water neutrality.

These components will need to be arranged in an adaptive management framework that is responsive to market interest. The alliance of civil society, government, academia, and private sector involved in this scheme are well placed to lead its development.

Conclusion

The water-neutral concept holds much promise as a framework for promoting a market in PWS. The concept, however, has to be moved from a qualitative to a quantitative assertion that is underpinned by a scientifically sound rationale, and located within an institutional framework that allows for continual innovation and refinement. Although still developing, we have presented an example of such a quantitative, science-based water-neutral scheme that is currently being implemented and supported by government, the private sector, civil society, and academic institutions.

We believe that this practical example has progressed our thinking toward applying this concept more widely. Replicability in other parts of the world will depend primarily on the availability of the scientific data to quantify the watershed services delivered by a particular management action, the degree to which potential buyers perceive watershed services as important to their core business, and the ability of an intermediary institution to bring these elements together in a structured and sustainable manner.

Editor : Richard Cowling

Acknowledgments

We acknowledge the support of WWF South Africa, South African Breweries Ltd., Sanlam, and the Working for Water program. We also thank B. Reyers, M. Keiser, S. Wunder and two anonymous reviewers for the valuable contributions they made to earlier versions of this article.

Ancillary