Droplet No. 1
5th October 2006
This, our first Droplet, is written with a view to catalysing discussion about opportunities to use market-based incentive
mechanisms to improve the management and use of stormwater. Our next droplet will focus on water accounting issues.
Droplets explore ideas and propositions which, if developed further, might improve water use. Ideas are explored from a
fundamental perspective. They search for the building blocks and concepts that one might consider using if one was able to start
without being constrained by prior decisions.
Stormwater: Expensive nuisance or an opportunity?
”Waste not, want not.” (Proverb tracked back to 1772 by Random House.)
The issue – why it is important
Hard surfaces, roads, roofs and paved areas are the main source of stormwater and each year massive
amounts of money are spent by state and local governments maintaining existing infrastructure, and, as a
city grows, building more stormwater infrastructure serving new urban development.
To minimise the cost of this infrastructure – reflected in rates and taxes – many large developers are
required to retain a lot of the storm water generated. Yet, when you and I extend a house and for many
smaller developments, we just pass the costs of managing the storm water we generate onto everyone
else.
But stormwater is also a resource – both public and private – and captured in rainwater tanks or stored in
retention ponds or underground aquifers it can be kept for re-use at a later date. Planners are also
seeking opportunities to introduce water sensitive urban design arrangements that use stormwater to
build more attractive landscapes.
In recent years, the increasing thrust of stormwater policy has been to find ways to turn stormwater into a
resource and reducing those peak flow impacts that, as a result of flooding, can cause significant
economic damage. Considerable progress has been achieved in using stormwater run-off from the
existing infrastructure with concrete drains being replaced with attractive areas that support vegetation,
and water captured initially in wetlands then being stored in aquifers until it can be used.
The next challenge in this chain of important developments is to develop an approach to reduce the need
to build more and more stormwater infrastructure to prevent flooding during peak periods. One way of
doing this is to reveal the cost of peak stormwater flows to us all. Can we knock the top off these costs?
The opportunity
How can we create incentives for existing owners of houses, industrial and commercial buildings,
carparks, etc. to reduce run-off during peak periods? By creating a market and using market-based
mechanisms that give the existing owners of buildings and carparks an opportunity to gain from reducing
the stormwater they generate. In many cases, it will be much cheaper to reduce run-off from existing
structures rather than reduce run-off from new structures.
The use of market-based offset and tradable credit mechanisms offer the opportunity to do this.
A stormwater impact offset system would simply require councils and or a stormwater
management authority to allow developers to have their development assessed on a “nett” basis
that includes credit for reductions in stormwater load elsewhere in the system.
A tradeable stormwater credit system would mean that any person who reduces run-off could
receive credit for any load reducing action that is in the community interest and then hold it until
someone else wants it. In effect, stormwater credits would become bankable.
The question that has to be asked is whether or not a practicable way to allow people to generate and
bank stormwater credits can be found. A considerable degree of pragmatism is necessary. The system
does not have to be perfect immediately and could be allowed to evolve and increase in complexity as
understanding and use of it grows.
Many proposed market-based instrument systems have failed to get up because they cost too much to
implement or are too complex. Probability of adoption increases with simplicity and pragmatism.
Elements of a stormwater credit system
One way of starting up a stormwater credit system would be to establish a stormwater management
authority charged with responsibility to raise the money to fund the construction and maintenance of
infrastructure and guide the development of stormwater policies. South Australia is in the process of
setting up a Stormwater Management Authority that could do this.
This stormwater management authority would empower local government authorities to issue and collect
stormwater credits as and when appropriate. The existence of a credit would be recorded on an internetaccessible register similar to that used by banks. The holder of a stormwater credit could decide, at any
stage to offer it for sale on an internet-based auction site.
Anyone, including a developer, could earn stormwater credits by acting to reduce expected peak storm
water load. For most investments in stormwater reduction, a standardised set of look up tables would be
used. Connect a 500 litre rainwater tank to toilet and receive, say, 300 credits. Reduce run-off from a
supermarket carpark by 100,000 litres and receive 100,000 credits. The number of credits received may
need to vary, possibly, by suburb.
When planning approval is given for a new development, a statement indicating how many credits would
need to be surrendered in order to obtain building approval would accompany it. Credits for surrender
could be obtained by
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Generating them;
Buying them from someone who has generated them; or
Buying them from the stormwater management authority.
The cost of purchasing credits from the stormwater management authority would be seen as a last resort
option and priced accordingly. There is a qualifier. An authority may find that it is cheaper to buy credits
from existing households and businesses rather than build drains! Stormwater retention on private land
may be much cheaper than that which can be achieved on public land.
Outstanding issues
When designing the detail behind such a system, it needs to be remembered that the aim is to reduce the
need to fund, build and then maintain more and more stormwater infrastructure.
The challenge is to work out how sophisticated offset and credit trading rules need to be. Stormwater
credit look-up tables would need to be developed and planning systems modified to require all aspiring
developers to account for the impact that a proposed development can be expected to have on
stormwater management costs. Some developers may become interested in selling retained stormwater
to industry.
Down the track, ownership issues will need to be resolved and ways developed to trade-off the ecological
contribution that stormwater makes to estuaries and the sea and its use on land and in business.
There is, however, no reason why the approach could not be trialled and experience used to help resolve
these outstanding issues.
Mike Young, The University of Adelaide, Email: Mike.Young@adelaide.edu.au
Jim McColl, CSIRO Land and Water, Email: Jim.McColl@csiro.au
Acknowledgements
The contribution of Nicholas Newland, Peter Dillon, John Ward, Richard Davis and John
Scanlon to the development of this droplet is acknowledged with thanks. Responsibility
remains with the authors.
Copyright © 2006 The University of Adelaide.
This work is copyright. It may be reproduced subject to the inclusion of an acknowledgement of its source.
Production of Droplets is supported by Land and Water Australia and CSIRO Water for a Healthy Country. Responsibility for their
content remains with the authors.
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