DC Water Environmental Impact Bond

The Problem

A third of the District of Columbia is serviced by a combined sewer system, in which storm water and sewer flow share the same pipes. Periods of heavy rain or snowmelt can cause the volume of the combine storm water and sewer flow to exceed pipe capacity: on average, two billion gallons of “combined sewer overflows” (CSOs) are diverted into the Potomac and Anacostia Rivers annually. CSOs are a major source of water pollution, and negatively impact water quality, air quality, natural habitats, and the public space. 

The Basics

Location: District of Columbia

Policy area: Environment

Service provider: DC Water and Sewer Authority

Size of investment: $25 million

Maximum success payments possible: $3.3 million

Investors: Calvert Foundation and Goldman Sachs Urban Investment Group 

Intermediary: Quantified Ventures

Other partners: Public Financial Management, Inc. (financial advisor), Harvard Kennedy School Government Performance Lab (technical assistance), Orrick, Herrington & Sutcliffe LLP (legal support), Squire Patton Boggs LLP (legal support)

Evaluation methodology: Pre-post

Outcome payor: DC Water and Sewer Authority

Outcomes that yield payments: (Tier 1) If GI reduces runoff by greater than 41.3%, DC Water and Sewer Authority will repay investors principal and interest, with an additional $3.3 million outcome payment. (Tier 2) If GI reduces runoff by between 18.6% and 41.3%, DC Water and Sewer Authority will repay investors principal and interest, but withhold the outcome payment. (Tier 3) If GI reduces runoff by less than 18.6%, DC Water and Sewer Authority will repay investors principal and interest, but investors will make a risk share payment of $3.3 million back to DC Water and Sewer Authority. 

Timeframe: 4.5 year service delivery term (5-year maturity)

Date announced: September 2016

The Intervention

Intervention: The DC Water Environmental Impact Bond will build green infrastructure (GI) to manage stormwater runoff in response to the increased frequency of heavy rainfall events due to climate change. Green infrastructure, such as rain gardens and green roofs, mimic natural processes in the water cycle that absorb water runoff during periods of heavy rainfall, leading to decreased CSO volumes, improved water quality in the District, and healthier futures for District of Columbia residents. 

Evidence Base Behind the Intervention: GI has been evaluated and found to yield positive outcomes, including reduced water runoff, restored ecological habitats, and stronger communities. Though green infrastructure has the potential to produce positive outcomes across a range of issue areas, its performance often depends upon the climate of a particular locale. There hasn't yet been a large scale implementation of GI for stormwater management in the District of Columbia before. Positive outcomes in this inaugural GI project may indicate potential to scale up GI in the District as a climate adaptation tool in the future.