Climate Action Begins with Democracy

May 30, 2025

How Water Tech Will Thrive Despite Federal Rollbacks

By Peter Yolles, General Partner at Echo River Capital

At Echo River Capital, we invest globally in early-stage water technology companies to Digitize, Decarbonize, and Decentralize the water cycle — our "Three D's of Watertech." Our vision for the future is living in freshwater harmony with nature, made easier through technology. But the past few months have made it clear that climate action starts with something even more fundamental: preserving our democracy.

Democracy First: Our Best Climate Strategy

The science is clear: climate change poses an existential threat to our planet, requiring immediate, coordinated action and investments in water-related adaptation and resilience. Yet the ability to take that action depends on the health of our democratic institutions. When democratic processes are compromised, evidence-based policymaking becomes nearly impossible.

Increasingly, experts are sounding the alarm that the United States has tipped into what political scientists call "competitive authoritarianism" — a hybrid regime where democratic institutions exist on paper but are manipulated to benefit those in power. According to a recent survey of more than 500 political scientists conducted by Bright Line Watch, American democracy has experienced a precipitous decline, with scholars rating it at just 55 out of 100, down from 67 following the November election, representing the largest decline since measurement began in 2017 (NPR, 2025).

As Harvard government professor Steven Levitsky explains, "We've slid into some form of authoritarianism... It is certainly reversible, but we are no longer living in a liberal democracy" (NPR, 2025). Levitsky and his colleague Lucan Way define competitive authoritarianism as a system where "formal democratic institutions are widely viewed as the principal means of obtaining and exercising political authority," but where systemic abuse of power tilts the playing field against opposition (New York Times 2025).

Perhaps the most telling measure of authoritarianism is the chilling effect it creates — when people fear speaking out because of potential government retaliation. As Levitsky recently observed, "In a democracy, there should not be a risk or a cost to publicly opposing the government. And I think now it's pretty clear... that there is a cost to publicly opposing the government. One runs a credible risk of government retribution if one opposes the government" (NPR, 2025).

Federal Government Bypassing the Will of Congress

The warning signs are particularly evident in how the federal government is disregarding the will of Congress in multiple areas affecting society's ability to adapt to water-related climate risks. Here are just a few examples of this disturbing pattern:

Hollowing Out Essential Agencies

Agencies responsible for managing, regulating, and innovating water resources are being systematically dismantled through staff firings and budget reductions. The Environmental Protection Agency anticipates a 54% budget reduction cutting staff to levels reminiscent of the Reagan administration, potentially eliminating thousands of positions from its current workforce of about 15,000 (NPR, 2025). This weakening of environmental oversight comes just as climate challenges demand more resources, not fewer.

In a particularly self-destructive move, the administration has terminated the EnergyStar program, which for decades has educated consumers on how to choose water and energy efficient appliances. This voluntary labeling program helped Americans save billions of dollars on utility bills while reducing water and energy consumption. Its elimination not only removes a valuable consumer resource but also eliminates market incentives for manufacturers to develop more efficient products. For an administration that professes its commitment to ensuring middle-class affordability, this makes no sense.

Similarly, the National Oceanic and Atmospheric Administration (NOAA) faces a proposed 25% overall budget reduction, with disproportionately severe cuts to research operations and fisheries services (NPR, 2025). This means less data collection, fewer scientific studies, and a dramatically reduced capacity to monitor and respond to climate impacts on our oceans and coastlines. NOAA also provides scientific expertise to community, state and local agencies that monitor rivers, freshwater and wildlife, such as migratory fish like salmon.

The administration has already terminated hundreds of probationary employees at NOAA, with one hurricane expert warning that the agency will go "from stretched thin to decimated" (NPR, 2025). The consequences could include regressing hurricane forecasting capabilities by decades—a frightening prospect as climate change intensifies storm severity.

The Bureau of Reclamation, the federal agency responsible for managing water resources in the Western United States, has lost approximately a quarter of its 5,800 staff through incentivized departures. This dramatic reduction in personnel cripples the Bureau's ability to manage critical water infrastructure, including dams, reservoirs, and irrigation systems across 17 Western states—precisely when climate change is intensifying droughts and altering precipitation patterns in these regions. For a region like Phoenix, which is dependent on the Bureau of Reclamation’s Central Arizona Project and Salt River Project for drinking water supply, there could be disruptions in a little as 6-18 months from now as the management and engineering system begins to creak, and possibly break.

The US Geological Survey faces a reduction of one-third, including $304 million, or 90%, to its Ecosystem Mission Area, which monitors water quality and is addresses the toughest conservation projects for lands and waters. These projects are especially important for the protection of endangered species, and to mitigate risks from wildlife diseases and contaminants. (New York Times)

Clawing Back University Grants

The administration has terminated thousands of research grants to universities, targeting not only diversity-focused initiatives but also cutting critical environmental and climate research. The National Science Foundation alone has canceled over 1,000 previously approved grants, claiming they "were not aligned with agency priorities" (NPR, 2025). Preliminary budget proposals would slash the NSF's funding by more than half.

Universities across the country are reeling from these cancellations, which undermine America's global leadership in scientific research and innovation. Johns Hopkins University alone faces the loss of $4 billion in federal funds, representing nearly 40% of its revenue (PBS News, 2025).

Many terminated grants focus on climate research, clean energy, and other areas critical to understanding and mitigating environmental challenges, including water management. For example, Princeton University lost $4 million in funding for three climate-related programs, with the Commerce Department claiming the research "promotes exaggerated and implausible climate threats" (PBS News, 2025).

Cutting Revolving Funds for Water Infrastructure

Perhaps most concerning for water infrastructure specifically is the administration's proposal to withdraw 90% of federal funding commitments to the State Revolving Funds that finance upgrades to drinking water and wastewater treatment facilities. The recent budget proposal would eliminate $2.5 billion for EPA's State Revolving Fund, arguing that "states should be responsible for funding their own water infrastructure projects" (Government Executive, 2025).

The Clean Water State Revolving Fund and Drinking Water State Revolving Fund programs have historically provided billions in low-interest loans and grants to municipalities for essential infrastructure projects. For the 2024 fiscal year alone, the EPA announced over $8.5 billion for states, Tribes, and territories through these programs, combining funds from the Bipartisan Infrastructure Law and the Consolidated Appropriations Act of 2024. The proposed 90% reduction would slash this to approximately $850 million nationwide. 

These programs have been chronically underfunded for years, but the current cuts are unprecedented—reducing federal support just as aging pipes, treatment plants, and distribution systems reach critical failure points across the country. The CWSRF was authorized at $3 billion for FY2024 and $3.25 billion for both FY2025 and FY2026, but even these authorized amounts only scratched the surface of actual needs.

This represents a devastating blow to communities struggling to maintain and upgrade essential water services. The EPA estimates the nation's water infrastructure capital needs over the next 20 years at approximately $896 billion (National League of Cities). Withdrawing federal support now creates a burden for state and local governments, particularly in economically disadvantaged areas.

These SRFs have been critical for municipalities to finance critical water infrastructure improvements at favorable rates. Their dramatic reduction signals a wholesale shift of financial responsibility from the federal government to states and ultimately to consumers.

What This Means for Venture Investing in Water Technology

In the face of these sobering developments, it might seem counterintuitive that Echo River Capital remains optimistic about the future of watertech investment. However, our analysis suggests that the current federal pullback may actually accelerate market opportunities for innovative water technology companies. Here's why:

1. Echo River Capital Does Not Rely on Federal Regulations or Fiscal Policy

Unlike some investment strategies tied to regulatory compliance, Echo River Capital does not use federal regulations or fiscal policy as primary market drivers for our investment decisions. Our thesis centers around customer value propositions related to inescapable market realities: growing water scarcity, aging infrastructure, and the need for resource efficiency. These fundamentals remain unchanged regardless of policy fluctuations. This approach insulates our portfolio companies from the direct impacts of federal pullbacks. We invest in technologies that make economic sense on their own merits—solutions that enhance customer revenue, save money, increase efficiency, and address market needs that exist with or without regulatory mandates.

2. Limited Exposure to Municipal Utilities

While the reduction in State Revolving Funds will challenge municipal utilities, our portfolio's exposure to this sector is under 20%. Only 5 of our 24 portfolio companies actively sell to municipal utilities, and most are not capital expenditure (CapEx) heavy. Our investment focus prioritizes companies with business models that don't rely heavily on large municipal capital projects. The majority of our portfolio companies sell to industrial, commercial, agricultural, and residential customers—segments with diverse funding sources beyond federal programs.

3. Growth Likely to Accelerate, Not Decline

Perhaps counterintuitively, the withdrawal of federal resources from water management may actually accelerate growth for certain watertech companies. As federal agencies reduce their capabilities, a vacuum emerges that creates market opportunities for private sector solutions.

Consider the example of the National Weather Service. As this agency faces budget constraints and staffing reductions, companies like Hohonu, which provides tidal data on sea-level and storm surges, are positioned to fill critical gaps. Hohonu has deployed low-cost tide sensors in over 100 communities across 14 coastal states, capturing more than 1 million hours of water level data (Apple App Store, 2023).

Similarly, companies like Waterplan are stepping in to help corporations assess and manage their water-related risks—a function that was previously supported by federal data and resources. Established in 2021, Waterplan provides a SaaS platform that helps corporate sustainability teams measure, report, and respond to water risks across their operations and supply chains. The company counts major enterprises like Amazon Web Services among its clients, helping them achieve ambitious goals such as AWS's commitment to be water positive by 2030.

This pattern—private technology stepping in where public resources recede—creates a robust market for data services, monitoring systems, predictive analytics, and decentralized solutions. As federal agencies collect less data and provide fewer services, communities and businesses still need this information to make critical decisions.

The Path Forward: Resilience Through Technology and Democratic Engagement

The challenges we face are substantial. Federal resources for climate adaptation and water infrastructure are declining just as these needs grow more urgent. Yet Echo River Capital sees a clear path forward that combines technological innovation with democratic engagement:

1. Invest in Resilient Technologies: Companies that provide data, analytics, and decentralized solutions will become increasingly valuable as federal capacities diminish. These technologies can help communities maintain critical insights despite reduced government services.

2. Support State and Local Initiatives: While federal resources decline, many states and municipalities remain committed to addressing water challenges. Companies that can align with these local priorities will find growth opportunities even in a challenging federal landscape.

3. Prioritize Economic Efficiency: Solutions that reduce costs, improve resource utilization, and generate clear return-on-investment will succeed regardless of the regulatory environment. Our portfolio companies focus on delivering measurable value that transcends policy changes.

4. Recognize the Risk Transfer to Consumers and Businesses: The federal pullback represents a fundamental shift of water-related risks from the government to private citizens, businesses, and local communities. This means consumers and businesses can no longer depend on federal resources for critical data during floods, storms, and droughts, or for assistance during water crises. Instead, they must proactively manage their operational water risks by investing in monitoring tools, early warning systems, conservation technologies, and backup systems. This risk transfer creates significant market opportunities for companies offering accessible, affordable water technology solutions that were once provided as public services.

5. Defend Democratic Institutions: As investors, we must recognize that the long-term health of our economy and our environment depends on functioning democratic processes. Supporting efforts to protect democratic institutions and promote evidence-based policymaking is essential to our mission.

The current challenges to federal environmental protection, scientific research, and water infrastructure funding are serious and concerning. Yet they also reveal the resilience of market-based approaches to addressing water challenges.

At Echo River Capital, we remain committed to our vision of living in freshwater harmony with nature, made easier through technology. We believe that innovative watertech companies will not only survive the current federal pullback but may find expanded opportunities to deliver crucial services that our communities need—regardless of which way the political winds blow.

The path ahead requires both technological innovation and democratic engagement. By investing in companies that address fundamental water challenges and supporting the democratic institutions that enable evidence-based policymaking, we can build a more resilient, abundant and sustainable water future for all.

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Echo River Capital invests globally in early-stage water technology companies to Digitize, Decarbonize, and Decentralize the water cycle. We support innovations with the highest potential to transform how we utilize water, with a vision of creating lasting environmental and public health benefits through impact-driven innovation.