Positioning Ireland For The Coming Water Crisis

02 Jun 2009

Joseph Curtin

This article appeared in the June 2009 Business and Finance magazine.

It may seem obtuse to talk of water crisis in the middle of what is shaping up to be one of the wettest Mays in living memory. And yet water scarcity already affects 44% of the world’s population, and is becoming a serious issue, not just for the developing world, but in many highly developed economies also. The challenges posed by water scarcity for governments and businesses in the coming twenty years will be unprecedented in their magnitude, as will the opportunities for forward- looking entrepreneurs and business leaders.

Water and Economic Activity

Water fundamentally affects all aspects of economic activity. According to the World Bank, the economic growth premium attached to fresh water access is in the region of 5% per annum, and areas without access to water such as sub-Saharan Africa are severely constrained in their development as a consequence. Again, this is not exclusively a development issue – in Australia, for example, the ongoing drought is estimated to have reduced national GDP by 1% in 2007.

Two aspects of economic activity are particularly dependant on availability of water: agriculture and energy. 70% of all freshwater extraction is used for agriculture. Meat production in particular is water intensive. One kilo of beef requires in excess of 10,000 litres of water, and a kilo of corn requires 1,300 litres of water.

Power and water are also intrinsically linked. Energy generation is dependent on water and 31% of all water withdrawals in the EU and 39% in the US are used for this purpose. Thermal and nuclear plant cooling, biofuels production and hydro generation require enormous quantities of water. Equally, water supply systems in themselves require substantial energy inputs.

Worrying Trends

Availability of and access to such an important resource deserves more attention than it often receives. The World Economic Forum (WEF), a think-tank for the world’s leading companies, recently identified water as a key concern for global business in the next twenty years. The report argues that the “water bubble”, which has made economic growth possible in the past 50 years, is about to burst and that the world is on the verge of “water bankruptcy”.

It identifies several unsustainable trends. First, extraction of freshwater cannot continue at current levels. Between 1990 and 2000, global freshwater extraction grew nine-fold.  Water tables as a result are falling at a rate of over a meter a year in parts of northern China and India, and several aquifers in the US have all but disappeared.

The state of play with the world’s rivers is even more worrying. Seventy major rivers are, according to the Millennium Ecosystem Assessment, near maximum extraction including the Colorado, the Yellow River, the Nile, the Ganges, the Jordan and the Euphrates. In 1997, the Yellow River, for example, was dry nearly 600km inland for almost a full year. The Murray Darling River in Australia no longer makes it to the sea. The situation will dramatically worsen in years to come. According to the IPCC in its 4th Assessment Report of 2008, by mid-century annual average river runoff and water availability will have decreased by an additional 10-30% in many regions.

Furthermore, as a consequence of climate change, the world’s glaciers - which act as huge water banks - are shrinking at an astonishing rate. Since 1940 a 30% reduction has been observed and on current trends they will have disappeared entirely by the end of the century. To give some idea of the impact this will have, one just needs to consider the fact that glaciers from the Himalayan plateau feed seven of the worlds largest rivers and provide water to 2 billion people.

Meanwhile, the global demand for food is set to grow by 70-90% by 2050 on current trends. Much of this increased demand will be for water intensive meat. The continued trend towards urbanisation has also increased the competition for water -  fast growing cities around the world have an enormous thirst to be quenched and their water requirements often come at the expense of irrigation. The world’s demand for energy is also set to rise significantly by 2030.

Exponentially rising demand combined with shrinking supply will lead to increasingly fierce competition for this scarce resource.

Visible Impacts

The impacts of the coming water scarcity can be clearly identified. It has been estimated that 669 cities  - 60% of all cities - have chronically failing water management systems. Many of these cities are in highly developed areas of the world. Atlanta, the home of Coca Cola, had just 84 days water supply left at the beginning of 2008, while Raleigh in North Carolina reported only 97 days of supply remained. Mexico City is currently switching off water supply three out of every seven days. It should be noted, however, that an estimated 40% of water is lost though leaks from corroded pipes.

Closer to home still, the Catalan Water Agency had to import ten oil tankers full of water to Barcelona to prevent a drought-induced water crisis in 2008. Supplies were sourced from Marseilles, the Catalan port of Tarragona, and from desalination plants near Almeria in the equally parched south.
The international market for food is also beginning to show the signs of the strain. Global food shortages were evident in early 2008 when many countries were unable to access food imports on global markets, while others withheld supply. From Haiti to Bangladesh to Egypt, riots over the soaring costs of basic foods resulted. Saudi Arabia has now established an investment fund to acquire oversees land to grow crops as a result.

The political and human impact is already being felt in drought stricken areas such as Sudan, where drought associated with climate change has been identified by analysts as one of the underlying cause of the Darfur conflict. The International Red Cross estimates that there are already 25-50 million climate change refugees in the world.

Should current trends continue, a nightmare scenario will unfold. Water scarcity will have a profound effect on the global economy with the negative consequences concentrated in vulnerable regions. Nearly 4 billion people will live in areas of high water stress by 2030 and economic growth, human security and environmental and geopolitical stability will all be affected. The Intergovernmental Panel on Climate Change suggests that 150 million environmental refugees could exist by 2020.

Future International Trends

On the positive side, effective solutions to many of these difficulties exist. According to Kermal Dervins of the UNDP, the world has “the finance, technology and capacity to consign the water and sanitation crisis to history”[1].

As the water challenge becomes more acute, the pressure for radical innovation and reform will increase and many of these solutions will be deployed. The water infrastructure in many developed and developing cities is antiquated and has suffered from underinvestment for decades, with the result that up to 40% of water is lost due to leaks, according to recent estimates. Reform of water management systems and improvement of water infrastructures is urgently required, creating huge opportunities for companies with the relevant expertise and experience.

New technologies must also be identified and brought to market. Recent advances in water membrane technologies for example, or the emergence of zero water/clean energy desalination plants will have to be deployed widely. Signs of change are encouraging. In Perth, for example, a solar powered desalination plant is planned, which will supply water for 400,000 people. Desalination is expected to be a boom market, rising 15% per annum to 2020 and possibly even faster after that. New emerging markets in water efficiency technologies, from toilets to faucets, present opportunities worth potentially billions of dollars.

Investment trends will also be affected. According to the World Economic Forum report, “water security ….is a growing concern to many companies, especially in the power, mining, food & beverage, and semiconductor sectors”. Companies, the report argues, will be required to provide more information to investors of their water related risks. Water-themed infrastructure funds might emerge as a better investment choice than oil, given that water prices have been rising at an average rate of 6.3% per annum since 1989.

The report also highlights activities of innovative investors on the lookout for water related investment opportunities. T. Boone. Pickens purchased US100 million worth of land for the water rights in Texas and sells the water on to Dallas-Fort Worth at an enormous profit. There have also been reports of icebergs and glaciers for sale, with all the attendant ethical issues that these types of arrangements give rise to.

The use of water for agriculture will need to be more efficiently managed. It is estimated that up to 50% of water used for irrigation is either wasted or evaporates. Agricultural efficiency will be at a premium. New water-efficient farming practices, innovative crop technologies, drip irrigation systems and rain water harvesting technologies will all need to be developed and applied.

The concept of “embodied water” is likely to gain attention. It takes over ten thousand litres of water to produce a kilo of beef, so it may make sense in certain cases to import the beef and use a country’s scarce water resources for urban populations or industry. But can countries depend on the international trading system to provide for these core food requirements? In 2008 thinly traded agricultural markets proved unreliable.

A greater awareness of the relationship between water and energy will also emerge. The water coefficient may well change the equation for energy providers in water scarce regions with less water-intensive technologies, such as renewables, gaining an advantage.

Enterprise Opportunities in Ireland

What enterprise opportunities present themselves in Ireland and what role can industry play here in responding to this challenge? In Ireland waste water treatment and water supply activities are run by public authorities in partnership with private companies. Over the last decade, investment in improving water infrastructure has taken place in line with EU Directives. Poor and inadequate infrastructure, however, remains the norm around the country.

The sector was valued at €622 million by Ernst & Young in 2004. This figure is predicted to grow by 8.8% annually due to the high levels of public investment in water.

Indigenous companies such as EPS, Treatwater Systems, Hydro International and Response Engineering have been involved in the upgrading of Ireland’s water supply and wastewater treatment facilities and have used the experience gained to move from domestic into  international markets.

Others may follow suit.

Several indigenous companies are also involved in what are likely to become enormous growth sectors internationally in the future, such as the development of desalination and purification technologies, energy efficient and “smart” pumps and valves, and advanced filtration systems such as UV, membrane, ozonation and rapid filtration.

Provision of consulting services will also be a growth area. Knowledge in the design and operation of “closed-loop” or “sustainable” systems for desalination and filtration are likely to be increasingly important.

In more general terms, Ireland may benefit as a location with abundant water supply, an increasingly important consideration for multinational companies. For companies such as Coca Cola who announced large-scale investment in Ireland in 2008, the country must be perceived as an attractive location for water-intensive activities. This comparative advantage must be actively leveraged.

While perhaps exporting water itself may not be on the immediate horizon, the embodied water of our food and beverage exports will be of increasing value in years to come. It will be incumbent on the agricultural sector in Ireland to enhance its efficiency and to maximise output per drop of water, and gram of greenhouse equivalent, in order for the sector to capitalise on what is likely to be an enormous opportunity in years to come.

It is enormously important for the development of these sectors in Ireland that more efficient management of our own water infrastructure is achieved and that the “sustainability” of the sector is enhanced. It is only by first developing the knowledge and skills domestically that Irish enterprises can establish themselves and move onto the international stage. Putting a monetary value on this relatively abundant resource in Ireland, even if only nominal, would bring us into line with the rest of Europe. This should be considered an important first step on a long road.

[1]  Quoted in WEF Report, 2009

As an independent forum, the Institute does not express any opinions of its own. The views expressed in the article are the sole responsibility of the author.