An electricity market-based approach to finance environmental flow restoration

A new study explores an innovative approach to financing environmental flow restoration in river systems affected by hydropower operations. Researchers propose using the electricity market as a funding mechanism, reducing dependence on government subsidies and external funding. The framework suggests integrating hydropower plants with sustainable operations into the portfolio of energy sources, enabling consumers to voluntarily purchase electricity from these sources through market trading. 

The study, applied to Brazil’s Paraná River Basin, introduces a dynamic compensation fund, where electricity consumers share the costs of environmental flow restoration proportionally to their energy consumption. The impact on residential electricity bills would be minimal—less than 1%—while industrial consumers could see increases of up to 12%, depending on hydrological conditions and restoration levels. 

By leveraging existing electricity market structures, the approach aims to fairly distribute costs and incentivize ecosystem protection without creating new regulatory bodies. The findings highlight the potential for market-driven solutions to balance hydropower generation with ecological sustainability. 

Read more here: https://doi.org/10.1016/j.jenvman.2024.120231