Pre-Feasibility Assessment of a Water Fund for the Ensenada Region Infrastructure and Stakeholder Analyses Josué Medellín-Azuara, Leopoldo Mendoza-Espinosa, Chantelise Pells, and Jay R. Lund June 2013 Suggested Citation: Medellin-Azuara, J., Mendoza-Espinosa, L.G. Pells, C. M. and J.R. Lund (2013). Pre-Feasibility Assessment of a Water Fund for the Ensenada Region: Infrastructure and Stakeholder Analyses. A Report for The Nature Conservancy. Prepared by the Center for Watershed Sciences, UC Davis. Executive Summary The Ensenada Region in Baja California (Figure ES-1) provides ecosystem services such as habitat for native species, scenic beauty and headwaters to sustain fast-growing population and high-valued agriculture in its coastal valleys. This semi-arid region mostly supplied by groundwater also faces challenging water problems such as water supply reliability for future needs, aquifer overdraft accompanied in some cases by salinity intrusion, and institutional inefficiencies to manage water resources (Table ES-1). Figure ES-1. Area of study in the Ensenada Region. A Water Fund is a novel water management tool to economically compensate for environmental services. Water Funds attract capital contributions from the main water users in a region including water utilities, agricultural users, and other economic sectors, in an organized and transparent manner, by investing these resources and maximize return over investment. Activities compensated in a Water Fund include protection of water supply sources through land and water conservation in the areas that provide ecosystem services, water conservation and maintaining community initiatives. Problems that could be addressed by a Water Fund in the Ensenada Region include land and water use practices in the foothills to enhance aquifer recharge –provided that comprehensive hydrologic studies deem net gains in water recharge; artificial groundwater recharge with reclaimed water, foraging crops irrigation with recycled wastewater, and water conservation. i Final Report A Water Fund in the Ensenada Region may result an attractive water management tool for government agencies, water utilities, urban and agricultural water users and non-governmental or conservation organizations. Improved water management and governance, higher local involvement, compensation for environmental services provision, and enhanced groundwater management supple are among the incentives for the various groups in the Ensenada Region. Costs of activities in a Water Fund for the Ensenada Region and the revenue generating tools require more detailed economic and financial analyses. Furthermore, estimation of net water supply gains from Water Fund activities through hydrological studies is in place. Table ES-1 Summary of preliminary Water Fund findings for the Ensenada Region. Ensenada Region water problems The Ensenada Region faces the water challenges of a well-developed yet semi-arid area, where water supply must cope with population growth, high-value agriculture, and mid-size commercial and industrial activity. 1 Water supply reliability. Growing population increases pressure on regional water resources. Regional water management plans at the federal, state and municipal level consider a fair range of alternatives including a desalination facility, reducing system losses, water conservation, wastewater reuse, and connection to the Tijuana-Colorado River aqueduct. 2 Aquifer overdraft. Current demands and over-allocation of water use rights pose a serious challenge to resource sustainability. Buyback of water use rights and regularization of users and aquifer management plans through COTAS are some strategies in place. Aquifer recharge with recycled wastewater and enhancing natural recharge through land and water management practices in the valley and mountains should be considered. 3 Saline intrusion. Saline intrusion in coastal aquifers impairs groundwater use and increases treatment costs. Increasing natural recharge in affected aquifers and implementing artificial recharge can prevent water quality degradation. 4 Institutional inefficiencies. Integrated regional water management planning and its implementation are in their early stages. Regional water management needs to more thoroughly address local concerns and gain financial self-sufficiency. Local involvement and governance are essential. Problems a Water Fund could help with A Water Fund for the Ensenada Region cannot address all large water management problems and is not a substitute for current planning efforts. However, a Water Fund can serve as a venue for incremental steps towards a more organized and socially-equitable water management discussion with some incremental steps to address the region’s water problems. 1 Land and water use practices to enhance groundwater recharge. Improvement of land and water use practices in the ejido and privately owned land particularly in the foothills might improve aquifer recharge. Activities might include reforestation with native species, enhance protected area and improved soils management to increase subsurface, surface flow and aquifer recharge. Research is needed to identify potential restoration sites, water recharge gains and losses, and costs. 2 Artificial aquifer recharge. Participation in aquifer reclaimed water recharge pilot programs. A Water Fund might help coordinate efforts between the water utilities, stakeholder and other agencies and interest groups. Water banking potential could be explored. 3 Irrigation of forage crops with reclaimed water. A Water Fund could help coordinate efforts for use of reclaimed water in irrigation. Some economic incentives for farmers ii Final Report and a revenue generating scheme to fund these projects could improve continuity and engagement of all involved parties. 4. Water conservation. Agriculture in the Ensenada Region is generally sophisticated with drip or other low water use irrigation system. Thus the potential of further conservation in agriculture is limited and might actually decrease aquifer recharge if it results in farmers increasing irrigated areas. Urban water conservation may have some areas of improvement by reducing system losses and total residential water use, the largest water user in the urban areas. Many infrastructural improvements are already taking place as part of municipal plans. However, a Water Fund may improve overall outreach efforts to reduce residential water use and help designing an appropriate scheme of incentives for conservation. Likely investors and their motivation in a Water Fund CONAGUA A main provider for infrastructural development. Local involvement from a Water Fund will likely improve regional water management in the Watershed Organizations. CEA Water conservation and increased groundwater recharge from a Water Fund program may reduce operating costs and the need for a prompt connection to the Colorado River aqueduct. CESPE Water conservation and increased groundwater recharge from a Water Fund program may reduce treatment costs, operating costs from a desalination facility. Non-Governmental Have a presence in the region and contribute with expertise in Organizations managing conservation programs. International Serve as provider of funds in a well-established framework for Cooperation preserving ecosystem services. Agricultural water users Improve irrigation practices to sustain agricultural production in the region. Large agricultural water users may also be providers of funds to a Water Fund. Urban water users Conserve water and slow the need for large infrastructure investments partially funded by increased water fees to augment water supply. Land owners (ejido and With a compensation scheme in place, improve water and land private) use practices, participate in conservation projects to increase net groundwater recharge. Some conclusions arise from this pre-feasibility assessment. 1. The Ensenada Region provides ecosystem services including water resources that sustain population needs, agriculture and other economic activity. These ecosystem services should be protected as part of the current governmental plans and locally raised conservation initiatives without great conflict. 2. Water resources management in Mexico faces infrastructural, institutional and financial challenges. There is a need to coordinate planning and funding to embrace and financially sustain local initiatives. 3. Water issues in the Ensenada Region include aquifer overdraft, over allocation of water use concessions, saline intrusion and a poor institutional infrastructure to address these problems in organized manner. Hence the opportunities for a Water Fund to help are present. 4. Ecosystem services can coexist with current and future development in the Ensenada Region. Key areas to target with a Water Fund are protection of land practices and the iii Final Report basins that contribute headwaters and recharge to aquifers, water quality in the aquifers, and augmentation of water supply via water use efficiency, demand reduction, or sustainable water supply sources. 5. The stakeholder potential support, the legal infrastructure, and the economic context for a Water Fund in the Ensenada Region exist. 6. Involvement of stakeholders and especially the CONAGUA through workgroups is fundamental and encouraged in the early states of the process. 7. More research is needed on how the stakeholder, legal and economic trio can be formalized in a Water Fund, in the areas if hydrologic modeling, economic and financial analyses, creation