Energy issues are at the forefront of the climate change debate. However, another issue is trickling forward: The power of H2O -- and the dangers of a lack of it -- can impact our investments.
Remember Peak Oil? Today, increasingly extreme weather and increasing awareness of scarce resources requires investors to contemplate a different danger: Peak Water.
Water, water everywhere... hey, wait...
Sustainability advocacy group Ceres tackled water scarcity issues as well as climate change at its annual conference in early May. Water scarcity is becoming a threat for the businesses we invest in and the economy at large.
In "Squeezing a Stone: Lessons From the Western Water Crisis," Ceres' panel used the Colorado River Basin as a high-profile example of water-related risks. Ceres' Sharlene Leurig pointed out that the Colorado River Basin represents one of the most economically productive regions in the world. It supplies water to 40 million people from Wyoming to Mexico, allows for irrigation of 5.5 million acres of farmland, and can generate 4,000 megawatts of hydropower .
She described it as an iconic example of water management -- indeed, think of the Hoover Dam, which is not only a major piece of infrastructure but has also been declared one of America's Seven Modern Civil Engineering Wonders. The Colorado River Basin has given parched desert cities like Las Vegas and Phoenix water resources, for example, and Southern California's millions of citizens rely on it, too. While it was a powerful boon to humans in the 20th century, Leurig pointed out that as the century turned, vulnerabilities began presenting themselves.
More than a decade of drought tells the tale. The Hoover Dam has already come "uncomfortably" close to having to shut down energy generation as flows became too low.
Political fiction and hydrologic reality
Dr. Peter Gleick of the Pacific Institute explained that the Colorado River Basin represents events in many different places. He vocalized the "peak water" idea: We think of water as "renewable," but it isn't really. We receive rainfall, but we can't make more. Meanwhile, just about any major river has its limits.
Gleick pointed out that fossil fuels are different: They're increasingly viewed as a liability, and we are running out of the environmental ability to burn them. However, we can innovate and find substitutes. On the other hand, water effectively has no substitutes.
Models suggest that not only have we overestimated the amount of water we can extract from the Colorado River Basin, but that climate change may reduce the average amount we receive going forward. Gleick argued that this could be a problem of "unprecedented magnitude." Yikes.
Panelist Lester Snow of the California Water Foundation concurred, pointing out that basic allocations have been exposed as "political fiction exacerbated by hydrologic reality." States relying on the Colorado River Basin put up political roadblocks, slowing down efforts.
The "silo effect" makes communications between institutions and constituencies difficult. We all know policymakers aren't moving on the issue, either. That may leave corporations as the most likely problem solvers.
Saving water and saving money
Some companies are tackling water scarcity, not only because it's the right thing to do but also because they have to. Although water shortages can cripple many business and economies, some businesses are directly affected by water supply already.
Gleick pointed out that Intel (NASDAQ: INTC ) constructed one of the most efficient chip plants in the Southwest due to water availability. In Intel's 2012 Corporate Sustainability Report, it vowed to reduce water use per chip below 2010 levels by 2020.
Michael Glade of Molson Coors (NYSE: TAP ) also participated in the panel discussion. Glade described Coors' ways of dealing with the problems at hand in water use. These have not been money-draining strategies. Glade said that the company's work in water, waste, and energy have resulted in $10 million in savings to the company's bottom line from 2008 through 2012, and it's expecting another $16 million through 2020.
Along those lines, I'm thinking of one company I follow, EnerNOC (NASDAQ: ENOC ) , which works on energy demand response. However, it's increasingly involved in irrigation systems. That seems to be a sign of the times -- and the future.
Some industries are trying to be part of the solution, but others haven't come around yet in force. For example, agricultural concerns' water usage is an important -- and large -- piece of this puzzle.
Furthermore, a gush of water is required simply to produce energy in this country. In the U.S., 30% to 40% of the freshwater that's withdrawn goes to power plant cooling, particularly thermal and nuclear. That doesn't even add into the equation the energy we need to deliver, treat, and use water.
During the conference, Ceres also released a report on fracking, the extremely controversial method of extracting natural gas. Fracking has major impact in water-constrained areas of America. Nearly half of the 25,450 oil and gas wells evaluated for the report are in water basins with high or extremely high water stress. Texas and Colorado rank high on the list of these parched regions that have been experiencing prolonged droughts. The New York Times reported that the spread of the practice could further strain these communities' water supplies.
We all require water, and too many of us take good old H2O for granted. It's time to think about how water goes far beyond the kitchen tap. My friend Jim Meyer recently exposed some major cities at risk of water shortages for Grist.org, infusing humor into the topic. (If you don't laugh, you'll cry, and stand-up comedians care about the environment too.) He brought up the Colorado River, and asked some important questions. For example, Can Americans actually handle a bourbon shortage? Maybe now we'll get more attention.
All joking aside, the "peak water" threat is an urgent one. Look out for the concern about water in the U.S. Companies can move quickly to help head off the problems, but those who ignore the urgency will hurt investors -- and the world at large.
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Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.