By Brooke Barton, Senior Director, CERES Water Program
The world is getting thirstier and we’re fast running out of ways to quench it.
A rapidly growing population, too many competing demands, and climate change impacts are creating a water availability emergency that the World Economic Forum recently ranked as the world\’s “top global risk.”
The fact that more than one billion people already live in water-stressed regions – and that this number is expected to double or triple by 2025, according to the UN – is just one dimension of this colossal threat.
There’s also social and economic disruption. California is now in the fourth year of a devastating drought that left a half-million acres of farmland unplanted last year, causing more than $1.5 billion of economic losses. Water-deprived Texas is riding the wave of a hydraulic fracturing boom, but it’s leaving less water for farmers and communities. Meanwhile, China’s water problems are already costing the country about 2.3 percent of its annual GDP.
“So much of life is affected by what happens with water,” said Robert Sandford, a leading thinker on water in Canada, speaking at this year’s World Economic Forum. “We didn’t realize until recently how much our economy and society relied on hydrologic stability.”
Tackling these global water challenges will require a major shift in how freshwater is managed, allocated, priced, litigated and, ultimately, used. It means finding regulatory and market mechanisms that ensure water’s true worth — to human life, ecosystems as well as economic well-being — is appropriately valued.
Re-thinking how we value water is a critical first step. Water is a finite and precious resource, but our economic systems treat it as limitless and of little value. For many companies and other water users, their water bills are so small that it hardly seems worthwhile to conserve. The result is unsustainable water use across much of our global economy — from industry to agriculture to homeowners.
Ceres is bringing unique capital market solutions to these challenges. Through cutting-edge research and direct engagement with the business community, we are pushing to change the way that companies and public entities manage water, and the way that investors consider water availability and water quality risks in their investment decisions. One of our key pillars for working with the business sector is the Ceres Aqua Gauge, which provides an easy and efficient way for companies to assess and improve their water risk management strategies.
In the United States, we are focused on three key sectors that use the vast majority of the country\’s water — public water utilities, the energy sector and agriculture. Taken together, these sectors are responsible for more than 90 percent of the nation’s water consumption. By improving their water practices, we can build an economy that protects freshwater for future generations.
Agriculture has long been the country’s biggest water user, especially in the Midwest and West, where many of our primary food staples are grown. California\’s agriculture sector alone generates $36 billion a year of revenue and produces nearly half of US-grown fruits, nuts and vegetables.
No doubt, American farmers are using water more efficiently. A recent study by the US Department of Agriculture, for example, showed a 9 percent drop in the irrigated water use nationally since 1998. Still, with increasingly intense droughts and groundwater supplies under pressure like never before, the industry’s overall water footprint is not sustainable, creating long-term risks for ecosystems and the economy alike.
Ceres has been especially focused on the corn sector, the nation’s biggest crop by far. Last year U.S. corn growers harvested a record 14.2 billion bushels, using one-third of America’s cropland (an area twice the size of Florida.) Nearly 40 percent of the corn is for feeding cows, pigs and chicken, with another 35 percent being sold to ethanol refiners to meet government-mandated blending requirements for our nation’s gasoline supplies. Less than 10 percent is for direct human consumption
But, as a Ceres report released last year makes clear, the corn sector’s water practices are taking an enormous toll.
The industry uses vast amounts of fertilizer, far more than any other agriculture sector. In states like Iowa, nitrate runoff is polluting streams, rivers and water supplies – so much, in fact, that the Des Moines water utility recently threatened to sue three counties for polluting its primary water source, the Raccoon River. Corn-related runoff is also the single largest source of pollution to the Gulf of Mexico’s “dead zone,” an area the size of Connecticut that is essentially devoid of life.
Lack of water is another problem, especially in Kansas, Texas, Colorado and Nebraska, which rely on fragile groundwater aquifers to irrigate their cornfields. The Ceres report showed that more than half of the country’s irrigated corn production, worth more than $9 billion a year, depends on groundwater from the Ogallala aquifer where groundwater levels are declining.
Unfortunately, climate change will likely add to these pressures. Numerous studies conclude that the negative impacts of climate change on agricultural production in the Midwest will outweigh the positive impacts.
Tackling these wide-ranging water challenges requires stronger state and federal regulations, but progress in this regard has been painfully slow. Ceres believes the biggest catalyst for change is the industry itself – in particular, the food, feed and energy companies which buy most of the nation’s corn and have an enormous stake in ensuring that corn production is reliable and sustainable.
Companies such as Coca-Cola, General Mills and Unilever have all set voluntary goals to sustainably source all of their priority agricultural ingredients – including corn – by 2020. With our guidance, PepsiCo has launched a sustainable farming initiative that aims to reduce water and fertilizer use by its growers all over the world. We’re also encouraged by public/private partnerships such as Field to Market, which recently announced an ambitious effort to accelerate sustainable growing practices on 20 percent of the nation’s farmland — 50 million acres — by 2020.
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How the country’s tens of thousands of public water utilities manage water use by residential and business customers is another key focus of Ceres’ work.
U.S. water utilities have long operated on the assumption of ever-increasing water demand and limitless water supplies, which meant they could sell more water, which meant they would have more revenues to pay their bills. That assumption worked in the 20th century when water was cheap and plentiful, and the federal government was willing to bankroll expensive water supply projects that made cities like Los Angeles and Phoenix possible.
But times have changed. Water supplies in many parts of the country, especially the arid West, are dropping like the rings on an emptying bathtub. And developing new water sources is becoming far more costly, the result of federal funds drying up and the water itself needing to be piped longer distances.
The San Antonio Water System, for example, recently signed a contract with a Spanish company, Abengoa, to build a 140-mile-long pipeline at a cost of $3.4 billion to move groundwater across Central Texas to San Antonio.
For the past few years, Ceres has been highlighting the financial risks of going further afield for water, beginning with its groundbreaking 2010 report, The Ripple Effect: Water Risk in the Municipal Bond Market. The report, done in collaboration with Water Asset Management, is designed to help bond-rating agencies; utilities and investors understand the long-term financial risks of trying to manage water shortages by building new water supply projects.
But Ceres also recognizes that utilities need better tools to avoid these costly projects while meeting future water demand.
Many utilities are raising water rates and enacting water conservation programs to limit to water demand. These approaches are sensible in many ways, but they have an unintended consequence: decreased water use reduces the revenues that water utilities need to pay their bills.
Clearly, water conservation is a far less costly approach to managing limited water availability than expensive new water-supply projects. But water utilities, which traditionally balance their budgets based on how much water they sell, must then shoulder the burden of too little revenue.
Ceres is working with utilities to solve this financing conundrum. Through the CFO Connect project, Ceres is working directly with water utilities in Colorado, Utah and Texas to develop new pricing models that will allow them to achieve a dual goal of revenue stability and water conservation that will reduce long-term water costs for consumers.
A shining example of this is Aurora, CO, which in response to a prolonged drought replaced its traditional water pricing structure with a block rate system. An average-sized home now pays $5.27 per thousand gallons if it uses up to 20,000 gallons, $6 per thousand gallons for up to 40,000 gallons and $7.50 thereafter. The city has also changed its water connection fees by charging less if it’s a small home with xeriscaping (landscaping that doesn’t require watering) and more if it has a big house with a large lawn.
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Hydraulic fracturing energy production, which uses significant water for each of its oil and gas extraction wells, is the new kid on the block in tapping the country’s limited freshwater resources.
A report issued by Ceres last year showed that the industry is using significant amounts of water in parched states like Texas and Colorado where fracking is booming.
Based on water-use data from nearly 40,000 fracking wells, the report showed that over 55 percent of the wells were in regions experiencing drought and 36 percent in regions with significant groundwater depletion. Water-use impacts were especially large at local levels, sometimes exceeding the water used by all residents in some Texas and Colorado counties.
The report has had an important role in motivating local communities and policymakers to look more closely at the industry’s water sourcing impacts and the urgency for reducing them. Texas is especially focused, for example, on minimizing groundwater impacts and examining current groundwater permitting loopholes, which allow companies to use as much water as they want for fracking. California has improved its water sourcing reporting requirements and is scrutinizing the practice of providing industry exemptions in an effort to protect vulnerable aquifers from fracking-related wastewater disposal.
The report has also helped in getting improvements from the industry itself, such as the company Apache, which is now recycling 100 percent of its fracking wastewater in key regions, such as the Permian Basin in West Texas.
Clearly, however, the industry should be doing more to substantially improve its on-the-ground practices. Failing to do so will almost certainly put the industry’s growth and limited freshwater supplies in states like Colorado and Texas on a collision course.
Article by Brooke Barton, senior director of Ceres water program. For more information, visit www.ceres.org/issues/water or follow on Twitter @ValueEveryDrop or @BrookeDBarton
Brooke leads Ceres’ water program, directing the organization’s research and corporate and investor engagement on the risks and opportunities related to growing water scarcity. She is the co-author of “The Ceres Aqua Gauge: A Framework for 21st Century Water Risk Management” and author of the 2010 Ceres study with Bloomberg and UBS looking at corporate water disclosure, “Murky Waters: Corporate Reporting on Water Risk”. Brooke also works with Ceres company members in the food and beverage sector, advising them on sustainability strategy and reporting, and coordinating dialogues between companies and their investor, NGO and labor union stakeholders.
Prior to Ceres, Brooke was a researcher for the Harvard Business School\’s Social Enterprise Initiative, where she wrote case studies and articles on the CSR strategies of multinational corporations in developing countries. While at Harvard, she co-edited Business Solutions for the Global Poor: Creating Economic and Social Value, a book examining over 20 business models for serving low-income consumers. Brooke\’s other professional experience includes communications and advocacy work with ACCION International, a microfinance NGO, and project evaluation with Catholic Relief Services in Bolivia. She holds a master\’s degree from the Fletcher School of Law and Diplomacy, and a B.A. in economics from Duke University. She speaks Spanish and Portuguese.
