The Water Cycle, Part 3 of 3: Valuing Ecosystems and Their Role in Balancing the Climate

03/27/2026
By: Dakota Glueck and Wendy Millet

The past two articles in this series on the Water Cycle explore a new perspective on the central role that an optimal water cycle plays in a stable climate and a healthy, productive ranch.  

In the first installment, we pointed out four key insights of this new perspective: 

1. Weather is created by global climate forces, such as heat dynamics and atmospheric chemistry, interacting with local conditions shaped by land cover and ecosystems, specifically heat production, reflectance, and humidity.   
2. The “small water cycle,” referring to the land’s ability to absorb, hold, and evapotranspire moisture, profoundly affects regional rainfall potential, especially in continental and dry climates. 
3. Ecosystems help create rain by producing Biological Cloud Condensing Nuclei (Bio-CNC). 
4. Hydrated landscapes experience evaporative cooling, in which the sun’s energy transforms liquid water into gas, thereby reducing sensible heat.

In our second article, we explored how land managers can integrate these insights into their work to promote a robust water cycle for the lands they steward. We talked about how regenerative management is critical to the health of forests, grasslands, and agricultural systems alike. We also discussed the role of specific techniques, such as Process-Based Restoration and water-retaining landscape features (ponds, swales, and stormwater basins), in healthy, hydrated landscapes. Finally, we talked about the critical role of riparian vegetation and wetland restoration in restoring healthy watersheds.

In this month’s article, we highlight how integrating understanding of these critical functions can profoundly change how we conceptualize the role ecosystems play in balancing the climate, how we understand the role humans play in helping to restore that balance through accelerating regenerative practices, and how we might increase funding for water cycle restoration work.

Payments for Watershed Services (PWS)

Carbon credits have been the dominant payment program driving discussions in climate and land management circles when the conversation turns to Payment for Ecosystem Services (PES). Yet, there is another set of payments called Payments for Watershed Services (PWS) that we hear relatively little about. PWS include payments for water flow regulation, flood control, water purification, erosion control, sediment capture, groundwater infiltration, and freshwater supply. 

Although less commonly discussed, Payments for Watershed Services account for a large share of the global PES market. In 2015, the last time a systematic survey of the PES sector was conducted, global PWS markets reached $24.7 billion, nearly 59% of the entire PES market that year. Since then, the total PES market has grown dramatically, and PWS remains a large percentage of that market and often pays much higher on a per-acre basis. 

Adoption of PWS, however, has not reached the systemic levels that our world needs to achieve large-scale change of our planet’s lands, waters, and climate. We need PWS markets to scale incentives for both restoration and regenerative practices.  Carbon capture payments, while a good start to help support healthy ecosystems, leave a lot to be desired. Carbon payments require markets where one credit is functionally indistinguishable from the next because, while carbon storage is a universal good, it doesn’t directly benefit anyone. Payments for Watershed Services, on the other hand, are more tangible, generating benefits for specific people, businesses, and communities. This connection between projects and the communities that benefit from them makes PWS a more direct means of motivating change on the land. 

Water Cycle Services

What if we could expand PES to include a new category called “Payments for Water Cycle Services (PWCS)”?  If we adopted the full suite of techniques outlined in our second article, what new services could be generated? Could we create new contracts and market types to connect buyers and land stewards? Could such payments capture enough of the value created in eco-hydrological restoration to drive adoption on a bioregional scale?

Here’s a thought experiment to work through these questions. Let’s imagine a 250,000-acre ranch in the American Southwest.  This ranch is upwind and upstream of a small river valley with a substantial agricultural economy that grows alfalfa, grass hay, and a variety of specialty crops. The valley is also home to a midsize city.  

This hypothetical ranch deploys the full suite of restoration techniques that we discussed in our second article. Imagine that the ranch manager developed stock water ponds and storm water basins across the ranch, identified erosion sites in upland areas and places in the creek experiencing downcutting, and installed One Rock Dams (ORDs) and Beaver Dam Analogous (BDAs) in appropriate places to re-water these areas (See Part 2). In this imaginary scenario, the ranch manager has also undertaken three restoration projects:  riparian tree planting, wetland restoration in a historical wet meadow that had been drained, and forest restoration on a high ridge on the windward side of the ranch.  Finally, imagine the rancher has adopted a regenerative grazing strategy.

The first benefits would appear on the ranch the spring following the installation of the various dams. Additional moisture in the soil from the earthworks contributes to increased vegetation and forage production, as well as a longer growing season. New ponds mean the rancher is better able to utilize parts of the rangelands that used to go dry. The planned grazing program enables better management of grazing land, allowing the ranch to reduce its customary hay-feeding period by a month. Growth in both the natural vegetation at the restoration projects and the increased vigor of forage mean that the rancher is off to a good start, feeding the livestock and meeting the goals of their grassland soil carbon sequestration contract.

Now let’s follow these benefits downstream. Additional catchment capacity created by the dams prevented the small town adjacent to the ranch from flooding during snowmelt. As we imagine the season’s progression, the rancher measures the creek’s volume as it leaves the ranch. The increased flows mean that:

• The rancher receives a monthly check from the irrigation district during the summer months. 
• The district is happy to pay, as this year they were able to continue irrigating longer than in previous years, when they had gone dry. 
• The local trade organization for hunting and fishing guides cuts the rancher a check because the sediment trapped by the ranch’s new dams helped to keep the river clear, improving fishing and spawning conditions.

Next, let’s track other possible benefits even further. For this, we need our new Payments for Water Cycle Services contracts.  

• The nearby city helped pay for improvements to the ranch through a green infrastructure bond for stormwater abatement. The city is happy as the rains are now both more frequent and less severe. They no longer risk overtopping the city’s sewer system or overwhelming its stormwater detention basins. 
• The farmers in the valley, of course, also benefit from the frequent rains for their crops and from reduced risk of flood and drought.
• A regional climate model estimates the ranch’s contribution to this more regular, gentler rainfall pattern. The model shows the increased moisture that the ranch is contributing to the air, as well as the efficacy of biological cloud condensing nuclei contributions from improved ecosystem health on the ranch.
•  The model shows that improvements on the ranch increased total rainfall during the growing season by a modest 3%. The rancher receives a PWCS payment per the terms of their contract with the local valley growers association. The growers are glad to pay because it was a good growing season; they will be even more glad to pay during a drought.

The following year, the region around the ranch experiences a heat wave. While so much of the area dries out and heats up, the ranch has maintained enough soil moisture to stay green and growing. The wind blows air from the ranch directly over the city. Though it’s still hot in the city, the evaporatively cooled air from the ranch makes the city 4 degrees cooler than it would otherwise be, perhaps even saving lives. This hypothetical scenario could be reality if we implemented PWCS.

The Challenge: Modeling Ecohydrological Restoration

The ability to scale up water cycle restoration depends on investor confidence and on the ability to predict and quantify the impacts of restoration work. Existing climate models can do much of the work, but aren’t designed to trace the impact of land-cover change through the water cycle to weather impacts. Likewise, models need to establish “additionality” as only the added benefit of the restoration actions will be monetized. This means models need to generate both restored and degraded scenarios to compare the impacts of different actions and price those impacts into payments and contracts. 

Integrating This New Understanding

Hopefully, the hypothetical scenario detailed above demonstrates the immense potential of adopting a water-focused approach to climate change mitigation. Overcoming the barriers to adopting this approach is achievable: harness popular imagination in support of holistic solutions, train land stewards, advance modeling and science, and develop innovative financial instruments. 

Advancing this work is crucial as a holistic, measurable, and achievable path to climate change mitigation. Carbon markets, as constructed by financial institutions, do not capture the full potential of ecosystem restoration or motivate the large-scale restoration of degraded lands to the degree needed. Water-focused approaches are a new lever to change this dynamic. With the added promise of biodiversity conservation and rural revitalization that a water-focused approach offers, we see this work as critical to the health of our planet, and the time for widespread adoption is now.