Lack of transparent disclosure has been an aggravation since my days as an international equity analyst. In my experience, there is only one solution to this aggravation: research. (Occasionally a sharp stick poked at the company directors worked.) The following was prompted by attendance at the ASrIA conference in Hong Kong in September 2011. The challenge to learn as much about the environmental sector in one week for three reasons: (1) How quickly may a Director and Officer become “reasonably” informed? (2) Do Directors and Officers need to know about it to survive? (3) If so, what should they be disclosing to shareholders and how? This is what I learnt….. The series runs sequentially over various subjects. _______________________________________________________________________________
Lack of transparent disclosure has been an aggravation since my days as an international equity analyst. In my experience, there is only one solution to this aggravation: research. (Occasionally a sharp stick poked at the company directors worked.) The following was prompted by attendance at the ASrIA conference in Hong Kong in September 2011. The challenge to learn as much about the environmental sector in one week for three reasons: (1) How quickly may a Director and Officer become “reasonably” informed? (2) Do Directors and Officers need to know about it to survive? (3) If so, what should they be disclosing to shareholders and how? This is what I learnt….. The series runs sequentially over various subjects.
Peak Water
Cursory research shows that there can prima facie be no Peak Water. However this may well be the one thing that you will not have to explain to your grandchildren depending where you live.
Some children in Australia were ten years old before they saw rain when the drought broke in 2010. But all children across Australia understood the issues of water regulation and pricing: no more running under the waterhose during unbearably hot summers, no more washing the car with mum in the driveway, etc. Water restrictions were taught in primary schools. So think water scarcity in Australia, and every family gets “it”.
China and Water, Why?
Because within the next few years China will surpass the USA as the largest economy in the world. Because it is going to be one of the key hotspots with respect to geopolitical disturbance. Just as oil and the Middle East have been a critical hotspot for the last 50 years, in the next it will be China and water. And if you think the wars over oil have been fierce, think how they will be over water. After all, we can do without oil but not water.
Countries reliant on water from China are: Pakistan, Bangladesh, Laos, Thailand, Pakistan, Myanmar, Vietnam, and Cambodia as many of Asia’s rivers flow through China (Mekong, Brahmaputra, and the Indus)[i]. Already this past month there has been an uprising within Myanmar to such an extent that that government has halted the building of a hydroelectric dam by China.[ii]
And if you are a Director and Officer of a company outsourcing from or selling to China, or maybe reliant on goods and services provided by China for your business, you would also need to be aware that prices for water there are set to increase 3-5 times, not percent[iii], to reach the price of Singapore. The water tariffs in China would need to increase 14 - 24 times to equal the tariff of Copenhagen[iv].
The China model, as reported by the FT, “has been predicated on cheap, pliant labour; cheap and easy credit from State owned banks; and heavily subsidised inputs such as power and water.”[v] And that is now changing.
China has 7% of world’s freshwater reserves but 20% of its population; and its renewable water per capita of just 1,816 m3 per annum, is only 20% of the USA per capita per annum. Its water per capita is similar to that of the Middle East, which is not a world renowned manufacturing base. Yet in the face of this very low capacity, or in addition to, according to China’s Ministry of Environment Protection, 19% of rivers and basins monitored for pollution and 35% of key lakes and reservoirs are essentially too polluted for agriculture and industrial use. A substantial proportion of water reserves are not fit for human consumption[vi].
It’s four top farming provinces produce more sheep meat than either Australia or New Zealand; more wheat than the USA [similar to India] and in 2008 more potatoes than Russia, plus USA, plus Germany combined. But 50% of its water pollution is caused by its agriculture[vii].
Finally 95.6% of China’s hydro and thermal electric power producers require water for generation[viii], and this production is set to nearly double (1.8 times) by 2020. That is 8 years away. That is, in the near term. In strategic plans, now!
And here of course, we can return to Peak Oil and Peak Carbon and Peak Food. Because water scarcity limits biofuel production, a replacement for oil. And it limits the production of many other goods and services that China may export, as water scarcity in the future and rising prices either limits production and raises prices of the good and services.
It takes how much?
It takes nearly 150,000 litres of water to make a car, and another 30,000 litres to put tyres on it. Nearly 250,000 litres of water to make 1 ton of steel[ix], and 5,000 litres to make one ton of cement. With China’s massive infrastructure build out, this will draw on its water resources heavily.
Its apparel manufacturing also faces its own price rises in labour, and a rising reminbi, let alone water. It takes 350 ton of water (cubic meters) to make one ton of paper.[x] A desk top computer takes 1,500 litres, denim jeans 6,000 litres; a kilo of wheat 1,000 litres, of chicken 3-4,000 litres, and of beef 15-30,000 litres[xi].
The annual global trade in “virtual water” is said to exceed 800,000,000,000,000 litres – the equivalent of 10 Nile Rivers. [xii] That’s correct, 800 trillion.
We could continue in this vein, however the point may be made over and over again: the requirement of water as an input in all products and production is ubiquitous. No Director and Officer can be immune to it.
Yet as mentioned above, the world has an abundance of water.
Arguments against Peak Water
There is more water than you can poke a stick at in the world, and Peak Water is just a concept. However, for all the water in the world, only 0.007% of all water on earth is accessible for direct human use; lakes, rivers, reservoirs, and underground aquifers.[xiii]
Reviewing the research, it appears that Peak Water as a concept can be broken into “peak renewable”, “peak nonrenewable” and “peak ecological water”. And although there is a vast amount of water on the planet, sustainably managed fresh water is becoming scarce. For example we are pumping fossil groundwater faster than it can be replaced. [xiv]
Again, it is well known that humans already use more than 50% of all renewable and accessible fresh water flows. Now, today. And this before the population nearly doubles over the next decades.[xv] By 2030 the global water demand will be 40 percent greater than today's "accessible, reliable, environmentally sustainable supply".[xvi]
Let’s say as a Director and Officer you would prefer not to use nonrenewable or ecological water resources because of their incredible high cost, then what remains is of critical importance is the “peak renewable” water resources.
As Dr. Peter H. Gleick, Ms. Meena Palaniappan describe in their 2011 paper, for a number of major river basins, peak renewable water limits have already been reached as human demand consumes close to the entire annual supply. The Colorado River in the US, for example, is shared by seven U.S. states and Mexico, and in an average year no water reaches the delta. Other rivers are increasingly reaching their peak renewable limits as well, including the Huang He (Yellow River) in China, the Nile in northern Africa and the Jordan in the Middle East, where formerly perennial river flows now often fall to zero. [xvii]
Their report also suggests the option available when renewable water is no longer renewing at a sustainable level, to the extent that Directors and Officer could rely for certainty of planning….
…..“when peak water limits are reached, there are only a few possible options for satisfying new needs; (1) reducing demand, (2) substituting one use of water for another that has higher economic or social value, (3) physically moving the demand for water to a region where additional water is available, or (4) investing in a higher priced source of supply (bulk imports or transfers of water). For water, the cost of a new supply, including the cost of transporting water, is often a key limiting factor. for water, as cheaper sources of water are depleted or allocated, more expensive sources must be tapped, either from new supplies or the reallocation of water among existing users. Ultimately, the ‘backstop’ price for water will also be reached. “[xviii]
The Murray Darling Basin Plan in Australia whereby government reduced the water usage is another example of businesses being disrupted due to ecological damage to water courses.
Gleick et al conclude that “ there are growing efforts to quantify peak ecological limits and to develop policies to restore water for ecosystem services in basins experiencing serious ecological disruptions. Regions that rely on ground water basins suffering from non-renewable withdrawals are under pressure to reduce withdrawals to more sustainable levels, or to better integrate surface and ground water management. The bad news is that we are increasingly reaching peak water limits.”[xix]
Ergo, fellow Directors and Officers, this is about increased cost. Ignoring the moral issues for a moment.
Strategies Peak Water
Directors and Officers denying that they need to measure and monitor their reliance on water when the evidence is all around us of business disruption, falling accessible and clean water, and its absolute requirement as an input to all aspects of its business, whether products, staff and community, is disingenuous.
No doubt there will be rent seeking all the way down the plug hole, but in the end, the evidence is clear now that a Director and Officer should be measuring the water footprint of the company to ensure that, when (not if) prices start rising they have the capacity to withstand it or at least know which levers to pull.
Probably even more imperative is assessing if any your products, supplies, or services rely on nonrenewable water or that drained from ecological waterways. If it is, you may be in real trouble not just on costs but supply constraints soon.
How much? Don’t know? As a Director or Officer, you will have to do the numbers.
This is how the research team of the world’s only global bank sees the water future in its report “The World in 2050”.
In 1995, about 1.8 billion people were living in areas experiencing severe water stress; by 2025, about two-thirds of the world’s population – about 5.5 billion people – are expected to live in areas facing moderate to severe water stress.[xx]
[i] www.Chinawaterrisk.org
[ii] http://online.wsj.com/article/SB10001424052970203791904576606951168757150.html
[iii]Secondary source: www.Chinawaterrisk.org
[iv] Ibid
[v] Financial Times, Monday October 17, 2011. “A Workshop on the Wane” by Jamil Anderlini.
[vi] Secondary source: www.Chinawaterrisk.org
[vii] Ibid
[viii] Ibid
[ix] Secondary Source: http://www.treehugger.com/files/2009/06/how-many-gallons-of-water.php
[x] http://www.paperonweb.com/A1015.htm
[xi] Nicholas Parker, chairman of the Cleantech Group, an international firm that works to accelerate the development and market adoption of clean technologies. See http://www.cwmission.org/features/thirst-for-change
[xii] Ibid
[xiii] http://en.wikipedia.org/wiki/Peak_water
[xiv] http://www.newsecuritybeat.org/2009/02/video-peter-gleick-on-peak-water.html
[xv] The Concept of Peak Water, 2011 Dr. Peter H. Gleick, Ms. Meena Palaniappan at http://www.siwi.org/documents/resources/best/2010/2011_OTT_PeterGleick.pdf
[xvi] U.S.-led study "Charting Our Water Future" by consultants McKinsey and Company
[xviii] Ibid
[xix] Ibid
[xx] http://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=ej73gSSJVj&n=282364.PDF
No comments:
Post a Comment