Stochastic hydro-financial watershed modeling for environmental impact bonds

Stream erosion, poor water quality, and degraded ecosystems impose major
cost burdens and challenges for stormwater managers. We present a
stochastic hydro-financial watershed modeling framework for designing an
Environmental Impact Bond (EIB) - a new form of financing for
comprehensive, watershed scale interventions. EIB's provide capital
for interventions that is repaid over time with interest by stakeholders
who experience reduced costs (savings). The framework not only estimates
cost savings from interventions, but aleatory and epistemic uncertainty in
costs - precisely the information needed by investors for interest rates
and payment periods. This work links the probability distributions of
watershed states and fluxes with financial paramters and thus overcomes a
barrier to the widespread adoptation of EIBs. The framework is applied to
a trans-national pollution and sedimentation problem on the U.S. - Mexico
border, and has broad applicability for a wide range of environmental
problems.