New Perspectives on Climate Finance for Cities report: Case Study
Long term solutions for stormwater management in Washington DC
The District of Columbia Water and Sewer Authority has raised finance via a green bond to deliver its plans to construct a drainage system that prevents excess rainwater and sewage from discharging into the area’s rivers, an effort dubbed the D.C. Clean Rivers Project. Currently, a 31mm storm generates about two million cubic meters of stormwater runoff which flows into storm sewers untreated and polluting the Potomac and Anacostia rivers. The Authority sold $350 million of bonds with a 100-year maturity. The bonds rated as AA, were high enough to raise the initial sale from $300 to 350 million. The bond issuance was vastly over-subscribed with investors placing $1.1 billion of orders. Extra long term bonds such as this are rare, whilst they have been used by universities, sovereign nations and highly rated companies this is the first example of a green bond of this kind. Traditional buyers for 100-year bonds include pension funds and insurance companies but about $100 million of the investor orders came from green-bond investors specifically. Investors who bought the D.C. water authority’s bond will be paid back with revenue from the water-and sewer system, which collects fees from residential, commercial and governmental customers. In that sense, the bond is similar to a typical municipal bond from a water-and-sewer utility.
In addition, the District Department of Environment is requiring the retrofit of regulated projects with a land area greater than 465m2. Regulations require such projects to retain the volume of a 31mm storm. Given that this regulation will be costly or difficult to implement in some cases, regulations allow for offsetting. In such instances projects can purchase stormwater retention credits (SRCs). In this system, pollutant-reductions can be achieved by paying for private-market stormwater retrofits at a lower price than it would cost to conduct those retrofits itself. This framework requires regulated projects to retain at least 50 percent of the volume associated with their applicable retention standard onsite. The remainder can be met offsite. In order to pursue offsite retention, the project has the option of paying an in-lieu fee or using a privately generated (and tradable) stormwater retention credit (SRC). The cost of the in-lieu fee corresponds to 3.8 liters of retention for one year, also equivalent to 1 SRC and the DDOE’s costs of installing the retrofits themselves. This approach drives down the cost of stormwater retrofits and incentivizes developers to generate SRCs through further installations.