A new market (or non-market) mechanism to make it rain

Exploring a payment for ecosystem services mechanism based on rainfall recycling to unlock a new source of finance for nature conservation, restoration and better land management.

Most of you have probably seen in the news that, one of the world’s biggest cities may be just months away from running out of water. Mexico City is home to almost 9 million people and due to years of drought, may fully run out of water from municipal supplies and rely on water being transported in on trucks (much of it in plastic) to meet the city’s needs.

A recent article by Alpha Lo on their Climate Water Project substack inspired me to ask the question,

Would the severity of the drought have been so extreme if Mexico would have prioritized land management more for rainfall recycling - evapotranspiration delivering rainfall further inland from the coastal regions of Mexico?

The Alpha Lo article, “Map of the small water cycle”, dives into the source of rainfall. In particular and what I found most interesting, how much of the rain in each country comes from the ocean, and how much comes from evapotranspiration over land.

Map of the small water cycle

Rainfall recycling and why it’s important

Alpha Lo highlights a pair of researchers in the Netherlands (Hubert Savenije, and his student Ruud van der Ent) and their findings on moisture recycling. In particular, they find that “40% of precipitation recycles globally, 57% of evapotranspiration recycles globally.” As far as I understand, this essentially means that 40% of rainfall (due to evapotranspiration) and 57% of evapotranspiration water volume itself is reintroduced to the atmosphere and falls again as rain on land instead of going back into the ocean.

Furthermore, Savinije and van der Ent highlight that, “Globally, recycled moisture multiplies our fresh water resources by a factor 1.67, but locally this can amount to a factor three (e.g., the Río de la Plata basin in South America), or even a factor ten in western China.”

So what are the implications for land management decision-making? Spoiler alert, they are huge.

Here are two maps that Alpha Lo highlights from the research that tell an interesting story.

This map shows the percentage of rainfall for each given area that is due to rainfall recycling - the amount of rain that falls in an area that comes from evapotranspiration. As you can see there are significant portions of South America, Africa and Asia that derive over 70% of their rainfall from recycled rain. And portions of North America, Europe and Australia also have areas where over 30% of rainfall is due to evapotranspiration and rainfall recycling.

This map shows the continental evaporation recycling ratio, which is how much evapotranspiration from an area that will come back down on the continent where it originally fell. As we can see, evapotranspiration across large areas of Western North America, the Brazilian Amazon, East Africa and much of Central Asia are major sources of rainfall across their respective continents.

The original research article highlights, “Moisture evaporating from the Eurasian continent is responsible for 80% of China's water resources. In South America, the Río de la Plata basin depends on evaporation from the Amazon forest for 70% of its water resources. The main source of rainfall in the Congo basin is moisture evaporated over East Africa, particularly the Great Lakes region. The Congo basin in its turn is a major source of moisture for rainfall in the Sahel.”

For the Mexico example, notice that Central Mexico has a continental precipitation and evapotranspiration recycling ratio of around 40%.

Could that 40% have made the difference in at least reducing the severity of the current drought?

Maybe. Let’s take a look.

How does rainfall get recycled and what are the implications for land management?

Another map from the article by the Dutch researchers shows where the wind blows on average and gives you an idea of how recycled rainfall moves across continents.

But if there’s no moisture in the air, then all the wind in the world won’t deliver a drop of rainfall. Evapotranspiration is key. And what is the source of evapotranspiration? PLANTS!

As far as I understand the science, and please correct me where I am wrong, this is quite simple. Quoting one research article focused on the localized cooling effect of wetlands and forests due to evapotranspiration, “Evapotranspiration-condensation processes slow down where there is a lack of water and permanent vegetation”. So simply enough, my understanding is that if we manage lands to increase vegetation in degraded areas or conserve vegetation in intact ecosystems, and possible even if we practice more agroforestry in arid regions, we very likely increase evapotranspiration and rainfall recycling.

So all of the nature-based carbon projects out there today that are increasing or protecting vegetation but only getting paid for the climate mitigation contributions of those activities, perhaps should also be getting paid for their rainfall recycling contributions as well.

Designing a market mechanism to compensate others for contributing to your rainfall

Ok, I’ll admit that I partially put the word “market” in the title to get your attention, but the mechanism for compensation for contributions to increasing evapotranspiration and regional rainfall does not need to be a market mechanism.

We know that evapotranspiration has local effects in terms of rainfall, but we are learning that it also has regional and very likely affects rainfall across a continent, spanning multiple countries. So, for example, should Argentina be paying Brazil for protecting the Amazon or restoring the Mata Atlantica and contributing to increased recycled rainfall falling in Argentina? Or perhaps more importantly, should all of the reforestation projects in those areas that currently have revenue streams from carbon credits also be getting revenue from their contribution to increasing rainfall in other regions/countries?

This is where things get complicated. The only other direct Payment for Ecosystem Service analog that I know of in the water space is Water Funds. Largely developed and implemented by The Nature Conservancy, Water Funds focus on increasing water quality, creating mechanisms where downstream utilities and water users pay for upstream ecosystem restoration to reduce sedimentation, thus saving on water treatment costs.

Rainfall recycling is an entirely different beast and much more difficult to quantify and attribute to a particular activity in a region. But, it is absolutely critical to delivering rainfall to inland areas that are increasingly under drought stress to due climate change. So how do we square this circle?

Start with data and establishing attribution

I think the first step, as we’ve seen with other ecosystem services/biodiversity, is to get more data and improve our science/modeling to the point where we could accurately attribute increased rainfall in a region to a land management practice in another region. It will likely be a long-time before we can do so with very high accuracy, but at least at a regional level, ideally we can start to spatially quantify recycled rainfall outcomes (downcycle) associated with land management practices (upcycle).

Compensation mechanisms

Once we have this data, the question is what is the best mechanism for getting beneficiaries to pay others for practicing land management that delivers a higher volume of rainfall?

On a local or regional level, this is likely simpler as one could imagine a corporate with soybean farms in the southern reaches of the amazon paying a forest conservation or restoration project deeper in the Amazon to maintain or increase rainfall recycling to ensure it’s delivery to the corporates landholdings. Again, critical to this would be the ability to attribute rainfall on that corporate’s lands (downcycle) to recycling occurring in the project area (upcycle).

On a transboundary (across countries) level, this gets quite a bit more complex. Given the number of public and private actors both contributing to land management changes that affect rainfall recycling and entities whose rainfall is getting affected further down in the water cycle, there might not be an option for individual landowners downcycle to pay individual landowners for land management upcycle.

Here, we might be looking at a sort of Article 6.2 but for rainfall recycling, where countries pay other countries for land management practices that increases the deliver of rainfall to the paying country. Given the complex agreements that countries have made around the consumption of water from rivers that run across country boundaries, one could envision similar agreements being made around land use and rainfall recycling.

Global security and mass migration

On the topic of global mechanisms and an article 6.2 type initiative, it is worth noting that there is a clear linkage between drought and conflict as well as between drought and mass migration as a 2022 study highlights, Research Predicts Massive Increase in Drought-Induced Migration.

I wanted to give this note it’s own section in this article because most of nature’s impacts, risks and dependencies are regional, especially when compared to climate change. BUT while the actions and impacts may be regional, the impacts can be felt globally and I think drought is a great example of potential for global north countries to pay global south countries for activities that mitigate the impacts of drought or decrease the severity.

Market or non-market mechanism

So how might one actually build a mechanism that gets funding from those who benefit to those who are managing land?

As for the mechanism itself, there is a level of fungibility for rainfall globally that we see with carbon, but I’m not sure if a global market makes sense from this perspective (but see my note above on why there might be potential for some sort of bilateral or multilateral mechanisms between countries). Water markets of course already exist on a regional level (and one might argue there are some global water markets through derivatives and such), but my sense is that a global market for rainfall recycling with full fungibility would not achieve the desired results.

One could envision regional markets where different buyers purchase credits produced from a general region that they know contributes to their rainfall. If you think about it, a regional market might actually help to address the attribution issue where it may be difficult to attribute the exact source of the evapotranspiration for a particular area of land downcycle to land management on a particular area of land upcycle. A regional market may actually be better as the benefit will likely be able to be established on more of a regional level in terms of source of the benefit upcycle and area of benefit downcycle rather than local which would likely follow more of a payment for ecosystem service type model rather than a market.

Limitations and the need for regulatory action

The main challenge is, like any major environmental challenge we are facing, there is a tragedy of the commons component. If I am a corporate operating a farm downcycle, I may be purchasing a credit from a project upcycle whose rainfall recycling benefits actually go somewhere else in my region. Thus, a mechanism for rainfall recycling may only work if every landowner in my region that is dependent on rainfall recycling for a large portion of our rain, is paying for better land management upcycle.

Therefore, a voluntary market/mechanism of sorts on a regional or transcountry level is unlikely to gain much traction. Likely, this will need to be organized at the federal or at least state/provincial level to ensure action is taken by all stakeholders who stand to benefit.

Another limitation, or maybe more so complexity, is that land managers and countries upcycle, may actually want to decrease evapotranspiration to increase the rainfall that they can capture and store in aquifers or reservoirs. But in my mind, this is even more of a region for downcycle countries and beneficiaries to pay upcycle countries and land managers to increase the evapotranspiration.

Next steps?

I think rainfall recycling is one of the most under appreciated ecosystem services out there that we should be paying for. We first need to increase our data and modeling capabilities, but shortly thereafter I would love to see some governments start to pilot programs/mechanisms for compensation.

For the Mexico case study, I haven’t been able to find any particular studies that assess whether deforestation or ecosystem degradation in Mexico has reduced rainfall recycling (please share if you do). And if there are any academics reading this and this topic is your area of expertise (or Microsoft folks working on AI models for weather and air quality), I’d love to see an analysis of the effect of shifting land management practices on rainfall recycling and drought in inland Mexico. Let alone other drought prone regions around the world.

We know that drought and food scarcity, even more than carbon and biodiversity, is ultimately what is going to cause mass migrations, destabilize economies and cause regional conflict. So let’s start working now on creating the mechanisms for compensation for ecosystem service provision (rainfall recycling) that we know is absolutely critical for sustaining rainfall and maintaining (and ideally increasing) the global socioeconomic stability we have today.

Oh, and I’d be remiss if I didn’t mention that evapotranspiration has the added effect of local cooling (Wetlands and Forests Regulate Climate via Evapotranspiration).

Thanks for reading and please reach out if this is something you are thinking about/working on. I haven’t seen any pilots/examples of this type of a mechanism being applied in real life but I’m hoping they are out there and would love to hear about them.

- Eric