Global Project Tests Whether Paying for Ecosystem Services Can Make Urban Water Fairer

As cities swell and extreme weather events strike with growing frequency, the question of how urban populations secure clean, reliable water has become one of the defining governance challenges of the decade. A newly launched international research project, PES4URBANWATER, is now tackling that question head-on by examining whether Payment for Ecosystem Services schemes can serve as both financial and structural instruments for protecting water resources and strengthening the resilience of cities. Coordinated by Cetaqua, the Water Technology Centre, in collaboration with RMIT University, the initiative is co-funded by the European Union through the AuSpire Program under the Marie Skłodowska-Curie Actions of Horizon Europe, and it sets out to answer a deceptively simple question: can market-based incentives for nature deliver water security without leaving anyone behind?

Payment for Ecosystem Services, commonly abbreviated as PES, is a policy instrument that translates the ecological work performed by natural systems into economic value. In a water context, this might mean compensating landowners for maintaining forested catchments that filter rainfall naturally, rewarding farmers for reducing nutrient runoff into rivers, or funding the restoration of urban wetlands that buffer neighbourhoods against flooding. The underlying logic is that when the beneficiaries of a healthy watershed—utilities, municipalities, residents—contribute financially to its upkeep, the incentives for conservation become embedded in everyday economic decisions rather than resting solely on regulation or goodwill. What distinguishes PES4URBANWATER from earlier work, however, is its explicit focus on systemic services and on the fairness of how costs and benefits are distributed.

The project will analyze how payments for systemic services can improve water quality, protect water resources and support climate change adaptation through an equitable approach across different organizational contexts. That emphasis on equity is not incidental. Previous studies have often assessed the economic or environmental feasibility of PES schemes in isolation, asking whether they deliver measurable improvements in water quality or whether they generate a positive return on investment. PES4URBANWATER instead places distributive justice at the heart of its analysis, examining how the burdens and benefits of urban water management models are actually shared among the communities, institutions and industries involved.

Dr Cecilia Higa Gonzales Morilla, an MSCA Postdoctoral Fellow working on the project, framed the rationale in stark terms. A water management model, she explained, is only truly viable if its burdens and benefits are distributed fairly and transparently. By comparing contexts such as Barcelona and Melbourne, the research team aims to demonstrate that environmental protection, financial viability and social justice are three deeply interconnected dimensions that must be managed together rather than traded off against one another. That framing challenges a long-standing tendency in environmental economics to treat equity as a secondary consideration—something to be addressed after efficiency has been secured—rather than as a precondition for durable policy.

The choice of case studies is central to the project’s analytical power. Barcelona and Melbourne were selected because they operate two distinct and pioneering water governance models. Barcelona is characterised by a centralised water management model, in which decision-making authority and infrastructure operation are concentrated within a unified institutional framework. Melbourne, by contrast, operates under a decentralised, multi-level governance system, where responsibilities are distributed across multiple institutions, scales and actors. This unprecedented comparison allows researchers to isolate how a city’s institutional and organisational structure influences the design, acceptance and ultimate success of economic incentives aimed at conserving riverine and urban ecosystems.

The technical significance of this comparative design should not be underestimated. PES schemes do not operate in a vacuum; their effectiveness depends on who holds the legal authority to contract payments, how monitoring and verification of ecosystem outcomes are organised, whether local communities trust the institutions administering the scheme, and how costs are passed through water tariffs or public budgets. A centralised system may be able to implement a catchment-wide payment scheme quickly and coherently, but it may struggle to capture local knowledge or secure community buy-in. A decentralised, multi-level system may be more adaptive and participatory, but it risks fragmentation, duplicated effort and gaps in accountability. By studying both models in parallel, PES4URBANWATER aims to generate insights that transcend either city and speak to the structural conditions under which PES succeeds or fails.

Methodologically, the project integrates environmental and economic evaluations with public policy analysis, a multidisciplinary combination that reflects the reality that water governance sits at the intersection of hydrology, finance and politics. Central to this approach is the deployment of Water-Oriented Living Labs, or WOOLs—collaborative innovation spaces where public institutions, industry partners, researchers and local communities co-develop solutions together. These living labs are paired with innovative regulatory sandboxes, controlled environments in which new policy instruments and governance arrangements can be tested without the full weight of existing regulation, allowing experimentation with PES designs before they are scaled up.

The knowledge generated through these labs and sandboxes will be translated into strategic recommendations and decision support tools for policymakers, water authorities, water utility companies and other key stakeholders. Crucially, the project’s designers have emphasised transferability: the suite of tools is intended to guide urban planners, managers and policymakers in any major city worldwide, not only in the two study cities. In an era when climate change is stressing water systems from Cape Town to Chennai, from Sydney to São Paulo, a framework that can be adapted across institutional contexts could prove far more valuable than findings locked to a single governance model.

The project’s ambitions also extend to the global policy agenda. PES4URBANWATER is explicitly designed to align with and directly support major frameworks, including the EU Biodiversity Strategy for 2030, the European Green Deal and the United Nations Sustainable Development Goals. Each of these agendas calls for scaling up nature-based solutions and ensuring that the transition to sustainability is just and inclusive, and each recognises that healthy freshwater ecosystems underpin everything from biodiversity to public health to economic productivity. By demonstrating how economic incentives for ecosystem services can be structured equitably, the project seeks to provide a practical bridge between high-level policy commitments and the messy, contested realities of urban water management on the ground.

For the cities involved, the stakes are immediate and concrete. Barcelona faces recurring drought pressure on its Mediterranean water supply, while Melbourne contends with the hydrological volatility of a climate that swings between bushfire and flood. Both cities have invested heavily in alternative water sources, integrated urban water management and community engagement, making them natural laboratories for testing whether PES can complement hard infrastructure with investments in the living systems that regulate water naturally. If the project succeeds in showing that well-designed payment schemes can simultaneously improve water quality, protect resources, support climate adaptation and distribute costs fairly, it could reshape how cities around the world finance their relationship with the ecosystems they depend upon—moving urban water governance toward models that are more effective, more inclusive and grounded in evidence rather than ideology.

Subject of Research: Payment for Ecosystem Services schemes for equitable and resilient urban water management

Article Title: PES4URBANWATER drives fairer, more sustainable and resilient urban water management

Article References: PES4URBANWATER drives fairer, more sustainable and resilient urban water management. (n.d.). Original publication

Image Credits: AI Generated

DOI: Not provided

Keywords: PES4URBANWATER, payment for ecosystem services, urban water management, water governance, Barcelona, Melbourne, distributive justice, climate change adaptation, Water-Oriented Living Labs, Horizon Europe, Marie Skłodowska-Curie Actions, water quality