Please admit California’s Pajaro Valley to the storehouse of evidence that charging a fee to use scarce resources can stretch those resources, to the benefit of all.
Never heard of Pajaro Valley? Me neither, until I came across NY Times climate reporter Coral Davenport’s compelling end-of-year story, Strawberry Case Study: What if Farmers Had to Pay for Water? Turns out I once hitch-hiked there en route to the spectacular Big Sur coast south of Monterey. But the payoff today is in the story’s subhead: With aquifers nationwide in dangerous decline, one part of California has tried essentially taxing groundwater. New research shows it’s working.
California’s Pajaro Valley, at center of this Google Map, hugs the Pacific Coast midway between Santa Cruz and Monterey and straddles the two counties named for those cities.
What’s working? A charge for groundwater extracted to grow strawberries, raspberries, brussels sprouts, lettuce and kale, administered by the state-chartered Pajaro Valley Water Management Agency to prevent saltwater from the adjacent Pacific Ocean from intruding into underground aquifers. The fee, which began several decades ago at a nominal $30 per acre-foot of water to recover PVWMA’s water-metering costs, now runs as high as $400, according to Davenport.
Lest that rise seem meteoric, and today’s price appear punitive, consider that currently the agency’s total annual water fees, $12 million, equate to barely 1 percent of annual Pajaro Valley crop revenues of $12 million. What’s more, an acre-foot — the standard volumetric for water supply — is enormous: enough to provide 3 million tall glasses of water, by my calculations. Even the projected 2025 price of $500 per acre-foot translates to a mere one-sixtieth of a cent per glass.
To be sure, that calculation is merely illustrative; water for drinking and water for growing crops are two different things. But consider what Pajaro Valley growers get from paying for water.
First, their payments are helping assure increased supplies of crop-worthy water. Revenue from the water fees enabled PVWMA to undertake a $6 million project that captures excess rainwater from a creek near the ocean and injects it into underground wells to be used for irrigation, and a $20 million water recycling plant that cleans 5 million gallons of sewage a day and pipes it to farm fields. Next up, Davenport tells us, is an $80 million system to capture and store more rainwater for irrigation. By replenishing and “stretching’ supplies of groundwater, these investments help ensure that brackish water from the ocean doesn’t seep into Pajaro Valley wells.
Just as importantly, the growers receive a potent incentive to use available water supplies more efficiently. “Gone were the days of sprinklers that drenched fields indiscriminately,” Davenport writes. “To save money, many Pajaro farmers invested in precision irrigation technology to distribute carefully measured water exactly where it was needed.” (See text box.) Though the article doesn’t mention it, these investments by dozens of individual growers might not have materialized had not all growers been subject to the same incentives to conserve as well.
Economics
Undergirding Davenport’s upbeat reporting is a 2023 working paper, The Dynamic Impacts of Pricing Groundwater, by three economists at U-C Berkeley’s Dept. of Agricultural and Resource Economics. In academic parlance, “dynamic” doesn’t connote a Marvel superhero, it refers to changes over time. By examining changes in water usage over time, the authors conclude that each “21% price increase led to a … 22% reduction in average annual groundwater extraction” by Pajaro Valley growers.
The implied price-elasticity is roughly negative 1.3. (The paper helpfully reports that “The reduction in annual water use doubles between the first year and the fifth year after the tax, with the implied price elasticity of demand ranging from negative 0.86 to negative 1.97.) This empirically-derived price sensitivity is far greater than the price elasticities assumed in CTC’s carbon-tax model, befitting not only the greater salience of water use for growers vis-a-vis energy use for consumers and even most businesses, but the greater agency of Pajaro Valley growers who, Davenport’s reporting suggests, over time have increasingly bought into PVWMA’s groundwater fee in both theory and execution.
After reading Davenport’s article I reached out to hydrologist, climatologist and water sustainability expert Peter Gleick, whose latest book, The Three Ages of Water: Prehistoric Past, Imperiled Present, and a Hope for the Future, was published last year by Hachette / Public Affairs. Peter praised the article while preferring to denote the PVWMA groundwater charge “not [as a] tax but a fee or simply a price for a commodity.” He added, “When we pay for something, we’re more conscious of how we use it. When something is free, we’re more likely to misuse and abuse it. That’s certainly been the case historically for California groundwater.”
Carbon Taxes?
A number of posts in this space have touted — we might say “flogged” — other instances of resource or externality pricing, as possible templates for large-scale carbon pricing. In 2016 we wrote about Berkeley’s soda tax, actually a tax on the sugar content of soft drinks, and summarized research showing that sales of sugar-sweetened beverages fell 21% in that city while rising 4% in “control groups,” i.e., neighboring municipalities where soft drinks continued untaxed. Last year we explained why Congestion pricing, coming soon to New York City, could bode well for carbon-taxing — a message we previously broadcast several times in 2019 as the enabling legislation was being enacted in Albany, in March and in April.
We also dug deep in 2017, writing about an incipient NYC nickel fee on carryout bags dispensed at supermarkets, grocery and convenience stores. (The fee was a month away from taking effect, and though we haven’t yet seen before/after comparisons, anecdotal evidence suggests that trees in New York City are today far less encumbered by what we referred to then as “gossamer debris stuck, like tumors, to our half-a-million street trees.”) We can also go back half a century, to 1972, when NYC environmental officials conjured a “dirty oil surcharge” that forced petroleum suppliers to cough up a fee for each barrel of high-sulfur oil they brought into the city, a remarkably successful (but little known) instance of externality pricing that I memorialized in a 2009 post for Grist, Pollution Taxes Work.
Needless to say, none of these fees — not the soda tax, not congestion charging, not the carryout bag fee, and not the dirty oil surcharge — has paved the way for full-on carbon pricing. While each of them has been or will be a resounding success, their scale is far too local and the stakes far too small to translate automatically to national or even state-level carbon pricing. The same will hold for California’s Pajaro Valley groundwater fee. Indeed, California water districts are wrestling today with the hard work of fulfilling a state mandate requiring every part of the state to devise a plan to conserve groundwater.
Happily, Davenport notes that PVWMA officials and even some growers are advising their statewide counterparts to emulate their approach, including “local control” rather than state or even county governance. Less happily, she reports that the Westlands Water District, which serves the state’s giant Central Valley breadbasket, is pushing a plan “that would allow growers to pay for credits to use groundwater above a certain allocation.” The growers “could buy and sell the credits, starting at about $200 a credit,” Davenport notes. While this scheme certainly improves on the status quo of charging little or nothing for groundwater use, it’s complicated and drenched in market ideology, much as carbon cap-and-trade systems needlessly encumber what could and should be straightforward carbon pricing.
Let’s not end on that dour note, however. These instances of resource charging — whether to stretch a limited resource or to internalize pollution or other externality costs — make it easier to build support for enacting new ones. Davenport’s story — here’s the link again — is both brilliant reporting and cause for optimism.
We close with a snap of the story opening and photo as they appeared on the front page of today’s (Jan. 4, 2024) Times, above the fold. Below it are calculations in which we derived figures in the first part of this post.
Calculation #1: Glasses of water in an acre-foot.
- One acre = 43,560 ft^2, so one acre-foot = 43,560 ft^3.
- One ft^3 (cubic foot) contains 957.5 fluid oz. (per inchcalculator.com; that figure jibes with the 62.4 lb weight of one cubic foot of water).
- A tall water glass contains 14 fluid oz. Thus, one ft^3 of water can fill 957.5/14 = 68.4 tall glasses.
- One acre-foot then contains enough water to fill 43,560 x 68.4 = 2.98 million tall glasses, which we round to 3 million.
Calculation #2: Groundwater-use price-elasticity inferred from empirical finding that a 21 percent price increase evokes a 22 percent decrease in usage.
- It is tempting to reduce this roughly 1-to-1 relationship to a (negative) 1.0 price-elasticity. However, that would ignore the law of diminishing returns and, mathematically, the convex relationship between changes in price and changes in usage.
- The price-elasticity is derived by solving for e in the equation, (1 + 0.21)^e = (1 minus 0.22).
- Using base-10 logarithms, we have: e times log 1.21 = log 0.78, which (omitting one or two steps) leads to e = negative 1.3.
Insetting program design starts with your supplier map. The carbon claim comes much later.
Consider a coffee procurement team that funds a farm intervention before checking its sourcing data. The supplier aggregates coffee lots from several regions. The buyer lacks farm-level traceability. Another purchaser expects to report the same outcome. A more attractive project brochure solves none of these problems.
If the distinction between a value-chain intervention and a purchased credit is still open, read CCC’s Insetting vs Offsetting guide before you set the brief.
Insetting program design begins with the purchasing relationship and works outward. You need to decide 1) where an intervention belongs, 2) what business problem it addresses, 3) who pays for it, 4) how results will be measured, and 5) what the evidence will let you say about them. This five-step playbook turns that sequence into a procurement plan.
Step 1: Insetting program design starts with supplier mapping
Start with the commodities that matter most to your Scope 3 inventory and sourcing continuity. Ask finance for spend by supplier, sustainability for the emissions baseline, and category managers for origin and volume records. Then identify which suppliers can trace material to a jurisdiction, sourcing region, producer group, or individual land-management unit.
The level of traceability affects what you can account for. Under the GHG Protocol Land Sector and Removals Standard, the spatial boundary for purchased land-based products depends on the traceability associated with each volume. Farm-specific factors or removals require physical traceability through an acceptable chain-of-custody model. A contract with a tier-one trader, by itself, does not establish a link to the farms behind its deliveries.[1]
Build a first-pass table with five columns: commodity and annual volume; supplier and origin; current traceability level; land-use and production risks; and the business owner who can change the purchasing terms. Mark missing data plainly. A blank cell is cheaper to fix before a program starts than after a claim is drafted.
If your company sets an SBTi Forest, Land and Agriculture target (FLAG), keep its land-related target boundary separate from energy and industry emissions. The current FLAG guidance also requires relevant companies to assess primary deforestation-linked commodities in their value chains.[2]
Step 2: Choose a commodity and jurisdiction for a pilot
Select one supply corridor where the sourcing connection can be established and procurement has a reason to stay. A useful pilot has repeat purchases, suppliers willing to share records, an intervention matched to a diagnosed problem, and a defined plan to measure the result. Carbon potential alone is a poor selection rule if the supplier cannot deliver the crop your business needs.
Compare candidate regions on land-use risk, supplier concentration, local rights and tenure, the availability of baseline data, and exposure to drought, erosion, or forest conversion. Check the relevant legal requirements separately. A nature project does not satisfy a due-diligence obligation merely because it has a carbon method attached.
Consider a coffee buyer sourcing from two districts. In the first, producer-group records identify the farms, while recent dry seasons have increased rejected green coffee lots. In the second, deliveries pass through several intermediaries and farm origins are unknown. Pilot shade management in the first district, with local agronomic advice and quality checks built into the plan. The buyer can trace purchases there and test the intervention against a defined sourcing problem.
Use a short decision memo to record why the selected corridor beats the alternatives, what remains uncertain, and what would stop the pilot. That memo is the first control against a project drifting toward whatever happens to photograph well.
Step 3: Design the supplier engagement and commercial model
The intervention needs an owner on each side of the contract. Decide who supplies planting material or training, who maintains the practice, who bears the cost if a harvest disappoints, and how long the buyer expects to purchase from participating suppliers. Where smallholders participate, budget cash flow and technical support for practices that offer a later return.
Put these terms in a supplier agreement or pilot addendum. It should cover eligible farms and volumes, consent to data collection, access for monitoring, any land or carbon rights that matter, benefit sharing, and what happens if the purchasing relationship ends. Ask local counsel and producer representatives to review the arrangement. The Accountability Framework is a useful reference for supply-chain work involving forests, ecosystems, and human rights.[3]
Avoid assigning an automatic carbon benefit to the buyer. The contract should say which party has the right to report each outcome, how overlapping claims will be checked, and how any issued credits will be handled. A reduction reported in a buyer’s inventory cannot simply be sold for someone else’s offset claim without an accounting review. SBTi FLAG guidance excludes purchased credits used as offsets from near-term FLAG target achievement.[2]
Set commercial measures beside environmental ones: delivered volume, rejection rate, supplier retention, and procurement cost. They tell you whether the program works as a supply-chain investment, even if carbon accounting takes longer to resolve.
Step 4: Build monitoring, reporting, and verification before rollout
Agree on the baseline and data flow before paying for a full rollout. Identify the land units or sourcing regions in scope, the practices that change, the records suppliers already keep, and the additional measurements the program requires. Decide which data can come from field visits, transaction records, or remote sensing, and who checks each source.
For carbon, separate three questions. Did the practice happen? Did emissions or removals change under an applicable method? Can the buyer attribute a defensible share to its purchased goods without double counting? The GHG Protocol’s 2026 guidance includes dedicated chapters on spatial boundaries, data and methods, evaluating actions, credited outcomes, and assurance.[1] These are distinct jobs. A photograph of a planted tree answers only part of the first.
CCC’s MRV and Additionality article explains the separate evidence questions a project reviewer will ask.
Create an evidence file for every reporting period: dated supplier and farm records, purchase volumes, methods and emission factors, uncertainty, quality checks, and changes from the baseline. Specify who can challenge the data and how corrections are recorded. If a project also seeks credit certification, keep project accounting and corporate inventory accounting separate. The GHG Protocol says its land standard focuses on entity-level inventories and does not set the rules for credit certification.[4]
Start with the minimum viable measurement design that can survive review. Add complexity when the pilot tells you which data actually changes a decision.
Step 5: Decide what can be reported and claimed
Insetting program design needs reporting rules before the marketing copy. Procurement, sustainability, finance, and legal should agree on four distinct outputs: operational performance; observed land or nature outcomes; inventory effects, if the accounting criteria are met; and any separately issued credits. One dashboard can display them, but they should not share a single unqualified headline.
SBTi FLAG guidance allows certain land-based removals within a company’s operations or supply chain to contribute to FLAG pathways, subject to criteria including permanence, traceability, data quality, and allocation. It does not allow purchased offsets to meet near-term FLAG targets.[2] Eligibility therefore depends on evidence and the applicable target rules, not on calling an activity “insetting.”
Draft a claims register. For each proposed sentence, record the period, boundary, data owner, calculation method, reviewer, and whether the result is measured, estimated, or still a goal. If the evidence supports only “we funded a pilot with 200 farms,” say that. Do not turn a funding fact into a verified emissions reduction.
What good looks like by year three
Treat year three as a review point, not a promised payback date. A mature pilot should have mapped participating supply volumes, a stable supplier agreement, a repeatable data collection process, and a comparison of commercial and environmental results against the baseline. It should also have a documented answer for outcomes that cannot be included in the buyer’s inventory.
Scale only where the pilot improves a sourcing decision and the evidence can follow the product. If neither condition holds, redesign the intervention or change the corridor. A disciplined program can conclude that a site is unsuitable. That is useful procurement intelligence.
Discuss your insetting program with CCC
Carbon Credit Capital designs nature-based supply chain investments around sourcing needs and measurable sustainability outcomes. Schedule a consultation with our carbon and sustainability experts to map your tier-one supplier network, FLAG exposure, and first pilot decision.
Sources
[1] GHG Protocol, Land Sector and Removals Standard, version 1.1, and companion Guidance, June 2026: https://ghgprotocol.org/land-sector-and-removals-standard ; https://ghgprotocol.org/land-sector-and-removals-guidance
[2] Science Based Targets initiative, Forest, Land and Agriculture Science-Based Target-Setting Guidance, version 1.2, March 2026, especially pp. 16–17, 37, and 41: https://sciencebasedtargets.org/resources/files/SBTiFLAGGuidance.pdf
[3] Accountability Framework initiative, Accountability Framework and guidance for companies: https://accountability-framework.org/
[4] GHG Protocol, Frequently Asked Questions: Land Sector and Removals Standard, questions 10 and 18: https://ghgprotocol.org/blog/frequently-asked-questions-land-sector-and-removals-lsr-standard
Nature-based carbon investments deserve consideration when they address a specific business dependency and produce outcomes you can measure. Imagine Moonbucks, a global coffee roaster planning next season’s espresso blend. It is considering natural Grade 4 coffee from Jimma, in southwestern Oromia, Ethiopia. Its sourcing decisions affect the roasting schedule and the cash tied up in coffee purchases. Moonbucks needs to understand which measures could protect that supply, what they would cost and how it would judge the results.
1. Define the sourcing problem before choosing a project
Moonbucks needs a dependable component for its espresso blend. Its procurement team wants continuity of volume and an agreed cup profile. Replacing a shipment at short notice could require new sample approval and changes to the blend, and given the schedules for cultivation, processing, and freight delivery, is practically impossible. Moonbucks needs to get this right, and its initial concern is inconsistent deliveries. It commissions an assessment of the supplying farms and post-harvest chain. The questions cover land condition, harvest availability and whether drying or storage problems are affecting saleable lots.
This distinction changes the investment brief. A tree-planting proposal cannot be assumed to fix drying problems. Better storage cannot restore eroded land. The team must establish which problem exists before selecting the response.
CCC’s guide to finding nature-based solutions in your supply chain explains where to look. Here, the next task is to turn a broad concern into a testable proposal.
2. Develop nature-based carbon investments around the actual supply chain
The assessment would trace Moonbucks’ purchases back through the exporter and supplying producer groups. Which farms supply the contracted lots? Who controls land-management decisions? How long does the buyer expect to maintain the purchasing relationship?
Furthermore, Jimma natural Grade 4 cannot be treated as interchangeable with every Ethiopian coffee. Moonbucks would need to test any substitute against its own blend and quality requirements.
Suppose Moonbucks’ assessment identifies an opportunity to maintain shade trees and restore vegetation along exposed streambanks. The IPCC describes agroforestry as a way to store carbon in vegetation and soil, with potential benefits for erosion control and water quality.1 Moonbucks would need local advice on species, growing conditions and maintenance before deciding how these measures fit its sourcing plan.
The proposal now has a defined sourcing connection and a candidate intervention. The next steps are to test its effect on production, assess carbon eligibility and build the financial case.
3. Compare the proposal with other ways to protect supply
WBCSD’s Nature-based Solutions Blueprint recommends comparing nature-based options with other responses across their benefits and costs.2 For Moonbucks, that means evaluating the landscape proposal alongside drying improvements, storage controls and alternative sourcing arrangements.
The product’s natural-process designation matters. Moonbucks should examine the drying and dry-milling chain alongside land conditions. Its team would check storage practices, contamination risks and incoming-lot quality to see whether problems arise before or after the coffee leaves the farms.
The revised proposal might combine land stewardship with separate post-harvest controls. Each component needs its own purpose and budget. A sustainability label should not obscure which activity is expected to solve which problem.
The project develops as the evidence improves. Its scope should follow the diagnosis rather than preserve the first idea unchanged.
4. Establish what the carbon outcome could count toward
Moonbucks’ sustainability team now tests the proposed carbon case separately from the sourcing case. Is the objective a measurable change in Moonbucks’ value-chain emissions, verified credits for separate voluntary use, or distinct outcomes under carefully defined arrangements?
Scope 3 covers value-chain emissions. A purchasing relationship alone does not prove that a farm intervention can be included in Moonbucks’ inventory. The team needs an applicable accounting method, defensible boundaries and evidence supporting attribution.
SBTi’s FLAG Guidance (forest, land and agriculture), version 1.2, says purchased credits used as offsets cannot meet near-term FLAG or energy and industry targets. Eligible land-based removals are subject to accounting requirements.3 Moonbucks needs to test its proposal against those rules before including an outcome in its targets.
For Moonbucks’ Jimma proposal, maintaining existing trees and establishing new vegetation could involve different carbon questions. Specialists must examine the baseline and additionality, meaning what changes because the project proceeds. They must also assess measurement and the risk that stored carbon is lost. CCC’s MRV and additionality article introduces those tests.
Until that work is complete, Moonbucks should not budget an assumed Scope 3 reduction or credit-sale receipt. Direct emissions reductions remain the priority.
5. Build a financial case that survives weaker assumptions
Moonbucks’ finance team would now build a multi-year budget. UNEP’s State of Finance for Nature 2023 compares current finance with the investment needed to meet climate, biodiversity and land-restoration goals.4 The company would cost its proposed activities, farmer participation and ongoing monitoring. Verification, where required, is a separate expense. Maintenance and responsibility for replacing failed plantings must remain visible after the initial establishment budget ends.
Operational benefits need equally careful treatment. If fewer rejected lots reduce emergency purchasing, count that saving once. Do not add “supply resilience” as another financial benefit when it represents the same avoided cost.
Moonbucks should compare a base case with slower benefits, higher implementation costs and no carbon revenue. It should also distinguish production outcomes from quality and shipment outcomes. A single good harvest would not prove that the landscape intervention caused better delivery performance.
A project can remain worth funding even when its carbon case needs more work. That decision must rest on the operational evidence and the company’s objectives, without unsupported environmental claims.
6. Fund a pilot with a clear expansion decision
Moonbucks’ first approval would fund a bounded pilot, rather than commit the entire sourcing program. Before spending, Moonbucks would agree on participating farms, responsibilities and the evidence needed at review.
Its scorecard could track farmer participation, implementation costs and plant survival, alongside accepted coffee volumes and lot-quality results. Carbon measurements would follow the selected method. Farm-level traceability must connect the intervention to the actual sourcing relationship.
Suppose Moonbucks’ review later finds that storage changes explain most quality improvements, while the land measures need longer observation. Those findings would shape the next decision: expand the proven component, adjust the landscape work or pause further spending. They would not justify crediting all improvements to tree planting.
This gives nature-based carbon investments a practical place in a multi-year strategy. Funding increases as the evidence supports it, and the project can change direction before a larger commitment.
Discuss a sourcing opportunity with CCC
Carbon Credit Capital’s nature-based supply-chain investment service uses its Dual-Value Model to examine supply-chain economics alongside potential sustainability outcomes.
Schedule a consultation to discuss your sourcing exposure and the questions to resolve before allocating capital.
Sources
- Intergovernmental Panel on Climate Change (IPCC), Climate Change 2022: Mitigation of Climate Change, Chapter 7, Agriculture, Forestry and Other Land Uses, section 7.4.3.3 (Agroforestry).
- World Business Council for Sustainable Development (WBCSD), Nature-based Solutions Blueprint, 5 June 2024.
- Science Based Targets initiative (SBTi), Forest, Land and Agriculture Science-Based Target-Setting Guidance, version 1.2, March 2026, section 3.1.4, pp. 37–38.
- United Nations Environment Programme (UNEP), State of Finance for Nature 2023, 2023.
A plastic credit funds the collection of plastic waste in places where no formal system exists to collect it. Each credit represents a measured, independently audited quantity of plastic taken out of the environment or returned to use, tracked on a public registry.
