Can Environmental Markets Pay for More Sustainable Farm Dams? A Cost–Benefit Analysis

ABSTRACT Farm dams are widespread artificial waterbodies that play a critical role in agricultural water security. Enhancing these systems through sustainable interventions such as fencing, hardened access points, and revegetation can improve water quality and deliver carbon and biodiversity co‐benefits. Yet, adoption of the sustainable interventions remains limited due to uncertain financial returns. This study evaluates whether payment for ecosystem services (PES) through carbon sequestration and avoided emissions could help offset the costs and influence the economic viability of enhancing an existing livestock farm dam, using a hypothetical carbon accounting framework. We conducted a 30‐year analysis of the benefit–cost ratio (BCR) of enhancing a 1 ha dam, evaluating returns from both carbon and non‐carbon benefits. Carbon and non‐carbon benefits together recovered approximately half of the enhancement costs (BCR = 0.51). Most benefits were non‐carbon, dominated by avoided desilting (74% of total benefits), while carbon credits from avoided emissions and sequestration contributed the remaining 26%. However, larger dams or dams where improved water quality produced even modest livestock weight gains (as little as 3%) were especially likely to deliver a positive return on investment (BCR > 1). These findings underscore the importance of incentive schemes and policy frameworks that explicitly account for the combined climate, productivity and ecosystem benefits of farm dam enhancement, providing a pathway to accelerate adoption at scale.