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 pro...