The Rio Grande Water Fund is a non-profit public/private partnership that seeks to treat and thin forests in the Rio Grande Basin, thus protecting one of New Mexico’s most important water sources. The Fund was founded to reduce the prevalence of overgrown, thick, and homogeneous forests and thereby reduce the risk of wildfire and mitigate impacts on watersheds. However, thinning and treating forests is costly, and there are hundreds of thousands of acres that need treating. This raises questions as to the value of improved water quality and security and whether a market can be developed for what is mostly small-diameter wood.
The wildfire risk and challenges posed by conditions in the Rio Grande watershed certainly are not unique. Similar conditions and issues exist across much of the West, and have contributed to the occurrence of wildfires that are on average larger in size than those that occurred approximately 30 years ago. Some areas and municipalities are already contending with wildfire impacts on their water supplies. The City of Denver, for example, has spent more than $26 million on water quality issues, reclamation, and infrastructure projects subsequent to the 1996 Buffalo Creek and 2002 Hayman fires. Denver has also developed a partnership with the USFS; the two are working together to address forest and watershed conditions that threaten Denver’s water supply. Across the West there is thus significant interest in developing markets for products made from small-diameter wood. Several USFS reports address this issue, and one describes several successful business endeavors in this area. However, even when markets are successfully developed, they often cannot bear the volume of wood resulting from thinning operations on the extensive areas that require treatment. This suggests that a diverse industry with multiple products and options would most effectively offset watershed treatment costs.
Bioeconomic models that integrate ecosystem models with economic models are valuable tools that can offer guidance and insight to the development of economically viable and environmentally sound programs and policies. For the purposes of assessing programs and policies in the Rio Grande watershed such a model would likely capture factors such as forest conditions and management practices (trees per acre, basal area, slopes, soils, potential thinning methods and associated costs, etc.), relationships between forest management practices and surface water supply and quality, the economic value of water and water quality, and wood products markets. Bioeconomic models can be used to evaluate the environmental and economic effects of various policy and/or program options. Alternately, optimal control methods can be used to assess which actions/decisions maximize (or minimize) a given objective function, such as social welfare.
Additional information regarding the Rio Grande Water Fund can be found here: http://www.nature.org/ourinitiatives/regions/northamerica/unitedstates/newmexico/new-mexico-rio-grande-water-fund.xml.
 Livingston, Jean. 2006. Small-diameter success stories II. Gen. Tech. Rep. FPL-GTR-168. Madison, WI: U.S. Department of Agriculture, Forest Service, Forest Products Laboratory. 31 p.