Canada’s participation in the Columbia River Treaty is potentially an inefficient use of Canadian water resources because the parties do not account for the value of ecosystem services in the payments made under the Treaty. The purpose of this study is to recommend a mechanism through which the parties could price ecosystem services in a modern Treaty. To inform my analysis of the options, I use economic valuation methods to estimate the major costs to Canada and the major benefits to the US of the Treaty in terms of changes in ecosystem services between two scenarios: Treaty Terminates and Treaty Continues. I also use a jurisdictional scan to identify mechanisms from other payment for ecosystem services schemes around the world. Results of the economic valuation suggest that the US benefits from ecosystem services are worth at least US$225 – 667 million per year. The valuation results also suggest that Canada incurs costs from foregoing benefits from Canadian ecosystem services worth US$24 to $41 million annually. The jurisdictional scan provides additional insights into pricing mechanisms. I assess three options based on their effectiveness in achieving the objective of maximizing the net internal benefit. I also evaluate the options’ sustainability, stakeholder acceptance, and administrative ease. I recommend that Canada and the US maintain the status quo practice of calculating annual payments on the basis of potential incremental hydropower, and consider the difference between potential and actual hydropower as a proxy for the value of ecosystem services.
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