In communities where rapid development is occurring even as future water supplies are uncertain, approaches for “offsetting” the water demands of new development may help to mitigate the effects on total water demand. By offsetting new demand for water, growth can occur in a “water neutral” fashion, conserving existing water supplies for ongoing use.

Water demand offset policies require that developers ensure that their approaches to development do not increase overall water demands. Many such policies for offsetting demand have been implemented in communities across the country, often including on-site efficiency requirements.

The basic components of a water demand offset policy include:
• A condition that triggers the requirement for a water demand offset (e.g., new development and/or expanded use of an existing connection),
• Water demand projection of new development,
• Methodology for estimating savings of on-site and off-site efficiency measures,
• Water demand offset ratio (e.g., a ratio of 1:1 would require 100 percent of the projected demand to be offset, a ratio of 2:1 would require 200 percent of the projected demand to be offset),
• Demand mitigation implementation options, such as:
      On-site efficiency measures,
      Off-site efficiency measures,
      On-site recycled water use, and
      Possible fee option in lieu of developer-implemented efficiency measures.
• Administrative fees and other costs,
• Verification of demands and implementation of efficiency measures, and
• A rule that ensures demand reductions are permanent.

A sound methodology for estimating the water demand of new development is a key component to the success of water demand offset policies. The ability to calculate credits resulting from savings by related water efficiency measures is also required.

Facilitating growth may be one goal of water demand offset policies. However, allocating savings solely to growth could result in inadequate supplies, particularly if the demand projections are underestimated, and/or the water savings are overestimated. Some water providers may choose to allocate offset water savings to supply storage in order to increase resilience in the face of drought.

National examples of water demand offset policies are listed and described in: Water Offset Policies for Water-Neutral Community Growth: A Literature Review and Case Study Compilation by the Alliance for Water Efficiency (AWE). A model ordinance, user guide, offset methodology, and additional resources are also available through AWE’s “Net Blue: Supporting Water-Neutral Growth” initiative.

Case Study Example*
A notable example of a successful water demand offset program comes from Santa Fe, New Mexico. The City of Santa Fe, New Mexico began a Water Conservation Program in 1997 that has contributed to a per capita water use reduction of more than 50% since 1995 bringing demand down to 56 gallons per capita per day (GPCD).

A 2002 drought caused the City’s demand to exceed supply. The City took aggressive action initiating a rate structure increase, a rebate program, and a water demand offset program. Their water demand offset program gained national recognition demonstrating its effectiveness as a way to meet future demand. The program set requirements for all new development to offset water demand either through conservation in existing development or transfer of water rights to the City. The requirements are as follows.

• For residential development requiring under 10-acre feet/yr and commercial development requiring under 5-acre feet/yr, the water demand offset could be met through conservation.
• For new development requiring greater than this demand, water rights would be required to offset new demand. To help developers offset demand, the City developed a toilet retrofits program.

The program connected willing homeowners who desired a retrofit to developers who could either buy credits from
a qualified broker or do it themselves.
 
This program was so successful that the City nearly maximized its conservation potential. In response, the City
updated its water demand offset program. The program includes the creation of a water bank to hold conservation
credits for future development and a Water Conservation Credit Program. This program includes:

• the addition of rebates for more types of water use efficient appliances or retrofits of older ones and for outdoor watering equipment;
• a water budget program where a water user enters into an agreement to use less water and the City monitors the usage and pays the customer for the reduction in use; and,
• a “free stuff” program including low-flow faucet and shower heads.

The water demand offset program applies to commercial projects that require 5 acre-feet per year (AFY) or more,
residential projects that require 10 AFY or more, and mixed-use projects that require 7.5 AFY or more.

*Santa Fe, NM example adapted from the Sonoran Institute’s Growing Water Smart: The Water-Land Use Guidebook for Colorado (2021).