Forestry management has enormous implications for both water supply and water quality. Deforestation to expand agricultural production can significantly impair water quality through increased nutrient concentration and resulting eutrophication. Wildfires resulting from poor forestry management can similarly impact water quality through erosion and runoff. Poor forestry management can also lead to the proliferation of invasive species that reduce overall water supplies. Despite this relationship between water and forests, few legal or economic incentives exist in many jurisdictions to encourage improved forestry management. This article compares and contrasts different legal challenges and opportunities in the Paute River basin in Ecuador and the Verde River basin in the United States of America. In Ecuador, FONAPA is an important water fund project aimed at improved forestry management in the Paute watershed, which includes a major hdyroelectric project (Mazar) and the ETAPA drinking water utility. It was created in 2008, and includes a public-private partnership between universities and non-governmental organizations. This water fund facilitates water conservation through forestry management for more than 1 million people, and guarantees water for hydropower projects. In the same year that FONAPA was created, a new Constitution was approved in Ecuador that recognizes water as a human right, and establishes the State obligation of its regulation and protection. Ecuador also approved a new water law given the new responsibilities delegated to sunational governments under the new constitution, including the protection of water sources and forests analyzed under this article. The program in the Paute basin may benefit from examining how Arizona has developed markets for water supply rehabilitation projects (like groundwater recharge) and financing improved forestry management (like the Water Finance Infrastructure Authority of Arizona). Additionally, in Arizona, the Verde River Exchange Program creates a Water Offset Credit program, allowing water consumers to receive saleable credits for reduced water consumption, which can include improved forestry management. This program has the potential to create incentives for improved forestry management in the Verde River basin. But it also creates legal problems around water rights. If water users concede that pumping a well impacts stream flow, then water rights may be subject to court adjudication. Additionally, if forestry management results in increased stream flows, it is not clear that those investing in forestry management will receive rights to the increased stream flow rather than the presumably less valuable offset credits. Reforms will be necessary to encourage improved distinction between developed water and salvaged water. This may require examining how FONAPA was implemented in Ecuador and how it might be adapted for implementation in Arizona.
While the Paute and Verde basins have different hydrologic, geologic, cultural, and legal contexts, both have challenges associated with the nexus of water management and forestry management, and are pursuing market-based approaches to address those challenges. Each approach has lessons for the other on legal reforms necessary to facilitate water fund partnership projects to improve forestry management, water supply, and water quality.