Urban stormwater runoff degrades waterway health. We describe a market-based approach to identify the most efficient investments to reduce urban stormwater impacts at minimum cost. The framework involves the joint consideration of public and private supply of environmental services across scales; a metric to compare the benefits of interventions across and within scales; an environmental procurement auction to reveal and minimise the cost of private interventions; and an endogenous reserve price to select the optimal portfolio of investments. The paper discusses the economic and environmental rationale for the proposed approach, along with the results of Stormwater Tender, a field trial in Melbourne, Australia. To conceptualize the optimal portfolio of investments we draw the aggregate supply curve and the production possibility frontier (PPF) using data from the field trial. We find considerable heterogeneity in both the private and public cost of providing environmental benefits, highlighting the need to consider interventions across a range of scales. We also find that existing theory is limited in its ability to predict bidders' behaviour. Despite this, it is evident that using the PPF to select projects considerably improves the cost effectiveness of the investment. We therefore conclude that the approach is an effective way of maximising the benefits of policy interventions to reduce the impacts of stormwater on urban waterways.
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