Author: Austin Thompson (Page 1 of 2)

On May 27th, Quantified Ventures issued a press release regarding the evaluation of the first ever Environmental Impact Bond (EIB). EIBs are innovative pay-for-performance debt-financing mechanisms that have been used to finance green infrastructure projects in DC, Atlanta GA, and Hampton VA. EIBs are unique in that they tend to have predetermined outcome measures that dictate the overall cost of capital. While green bonds also finance environmental projects, they typically do not measure and report outcomes. 

About the DC Water EIB

The DC Water EIB funded green infrastructure installments aimed to reduce runoff into DC Water’s combined sewer system, and eventually into Rock Creek. The EIB funded 25 acres of green infrastructure as part of DC Water’s Clean Rivers Project, which aims to reduce runoff into combined sewer systems and combined sewer overflows. The $25 million EIB was sold to Goldman Sachs and Calvert Impact Capital in a private issuance and included three performance tiers. The outcome measure for the project was runoff reduction into the combined sewer system, measured against a flow baseline established before the project was completed. 

The idea is that an EIB allows for risk-sharing. If the project underperforms, DC Water receives a performance payment from investors that reduces the cost burden on ratepayers. Because DC Water is required to reduce combined sewer overflows, underperformance might mean future investment to control the problem. The table below summarizes the range of outcomes and performance payments for the DC Water EIB, as outlined by a Goldman Sachs fact sheet. 

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The current housing market boom leads to large tracts of available land being swept up into the hands of private developers. For many local governments, development is good. It provides access to new tax revenues and tends to perpetuate growth; an area actively developing tends to attract more industries and people. These new revenues can be used for any number of purposes, including adding services, such as  land conservation or parks and recreation, to the municipality. The challenge is in protecting land before it falls into the hands of developers, and balancing the open space needs of the municipality and its constituents with the municipal revenue streams.

Any land conserved or turned into a public park is lost property tax revenue. In larger cities with combined sewer systems, land conservation may have a direct return on investment, whereby the open spaces reduce the total impervious surface and associated runoff, and thus prevent or reduce combined sewer overflows. But in municipalities without regulatory drivers, the benefits may be less direct and harder to quantify. Green space does provide many direct and indirect economic benefits to a municipality, including attracting development and increasing property values. Other, less measurable benefits include mental, physical, and emotional wellbeing, which are important to overall quality of life but do not have a market value. In a Benefit Cost Analysis, these values are important, but challenging to meld with dollar values for costs or dollar value benefits in avoided costs for upsizing a stormwater system.

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