November 3, 2010

How to Make Money Grow on Trees

By embracing the concept of natural capital in the form of treess, the two companies featured in Bridgespan Manager Serita Cox's Harvard Business Review blog have saved money—as well as the watersheds on which they rely.

By: Serita Cox

(This blog originally appeared on the Harvard Business Review website.)

Turns out money can grow on trees — to the tune of $50 million of cost savings, according to Clean Water Services, a water utility in Oregon. The company has embraced the concept of natural capital as it employs trees as an economizer in its innovative wastewater management program. Centered on the Tualatin River watershed, Clean Water Services must meet the needs of a fast-growing urban population that uses the river for drinking water, sanitation, and agriculture. However, the Tualatin River isn't the Amazon, discharging seven million cubic feet per second. Far more anemic, the Tualatin meanders through 80 miles of flat terrain, as the only river in Washington County, and drains more than 700 square miles of forested, agricultural and urban areas at a lethargic 3,600 cubic feet per second. Local Atfalati Indians were right when they named it Tualatin — the "sluggish" river. With a sluggish river, a growing urban population and agricultural activity taking up 50 percent of the watershed, what could go wrong?

Before Clean Water Services discovered the true capital of trees, the Tualatin became infamous as the first river in Oregon to fail Clean Water Act standards. Citizens sued; politicians swung into action and instituted new regulations. As part of the clean-up, Clean Water Services, or Unified Sewerage Agency as it was known back then, faced tough new regulations for maximum discharge temperature from its four waste treatment facilities. Instead of installing coolers at a cost of $102 million to $255 million to chill the water, the company looked to nature to regulate itself. It planted shade trees along the Tualatin at an estimated cost of $12 million over 5 years. The combination of forest shade and a release of water from upstream reservoirs help to lower river temperatures. The company calculates that the streamside shade also helped to avoid approximately $50 million in costs. Such innovations have resulted in a turnaround for the Tualatin. The river is clean, fish habitats thrive, and people can enjoy canoeing the river without having to see industrial coolers (with their own potential pollutants). And Clean Water Services has won numerous excellence awards from the EPA for its naturally-based waste management approaches.

This is not an isolated success story of leveraging natural capital in the form of trees to lower costs and help the bottom line. In Costa Rica, Enel Latin America, a hydropower company, found trees to be the solution to boosting its power output. Enel identified increased river sedimentation as the source of its power problem, and soil erosion from farming upstream as the underlying cause. Instead of investing in dredging, a temporary fix that would need to be employed again and again, Enel paid farmers to plant trees on its properties to hold the soil. No more sedimentation, no dredging (and the costs that went with it), more power and cleaner water.

For both Enel and Clean Water Services, planting trees saved costs and nourished the bottom line. But the bigger story is how a natural capital approach can be used to save enormous costs to society — by saving our watersheds.

I point this out because clean water is scarce and getting scarcer. The Millennium Development Goals 2010 report states that nearly a billion people do not have access to safe drinking water. And the United Nations predicts that by 2040 the demand for clean water will exceed supply by 30 percent. More than a little scary when you consider that while oil or coffee shortages might make life hard, we can't live without clean water.

The good news is that watersheds are well-defined ecosystems. They have a source, we can track their flow and we know where they end. As such, we can trace where and how a watershed becomes polluted, and work to prevent it. Or follow the example of polluted Tualatin and Clean Water Services and affect a wholesale turnaround. Could you imagine drinking water from the Yangtze? Perhaps innovations that leverage natural capital can provide cost-effective, environmentally sustainable solutions to our water problems. Take a stroll through your local watershed and think about it.

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