Business Ramifications Discussion: Tuesday, June 28th, 2011

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Energy vs. Water in China and the U.S.

Photo; Aaron Jaffe / Circle of Blue


In June 2011, Circle of Blue hosted an interactive Maestro conference call about the business ramifications of the collision between energy and water in China and the United States. The year-long Choke Point project concludes with an exclusive, in-depth assessment about energy prices and stability in the world’s two largest economies. China faces a looming energy shortage because it does not have enough water to develop the immense coal reserves in the dry north, which last year supplied 66 percent of China’s coal. Similarly, in the U. S., billions of gallons of water are needed to develop the deep shale oil and gas reserves of the northern Great Plains and the Rocky Mountain West. Leading authorities from Circle of Blue, the Woodrow Wilson International Center for Scholars China Environment Forum, Asian Development Bank, GlobeScan and SustainAbility examined the tightening energy-water choke points and how the competition between these two vital resources affects prices, markets, and global business decisions.

Discussion Outline

Welcome and Introduction
J. Carl Ganter: managing director, Circle of Blue

J. Carl Ganter is managing director at Circle of Blue and a member of the World Economic Forum’s Global Agenda Council on Water Security.

The Water-Energy Challenge
Keith Schneider: Senior Editor, Circle of Blue

Keith Schneider manages the Circle of Blue news desk and participates in multi-media story development reporting, editing, and production. He is a nationally known journalist, online communications specialist and environmental policy expert. Keith was a New York Times national correspondent for over a decade, where he continues to report as a special writer on energy, real estate, business, and technology.

Perspective from the China Environment Forum
Jennifer Turner: director, China Environment Forum, Woodrow Wilson International Center for Scholars

Jennifer Turner is the director of the China Environment Forum at the Woodrow Wilson International Center for Scholars in Washington, D.C. Besides putting on meetings and publications focusing on a variety of energy and environmental challenges facing China, she has coordinates research exchanges in China, the United States, and Japan bringing together Chinese, U.S., Japanese, and other Asian experts on issues of environmental nongovernmental organizations, environmental journalism, river basin governance, water conflict resolution, and municipal financing of environmental infrastructure. She also serves as editor of the Wilson Center’s journal, the China Environment Series.

Perspective from the Asian Development Bank
Arjun Thapan: Special Advisor to the President, Asian Development Bank

Mr. Arjun Thapan is Special Senior Advisor for Infrastructure and Water to Asian Development Bank (ADB) President Haruhiko Kuroda. His focus is to strengthen the communities of practice in water, energy, transport, and urban development, and ensuring that ADB develops effective partnerships and knowledge platforms to deliver high quality policy and technical advice to its clients. He also guides the design and development of the ASEAN Infrastructure Fund. Mr. Thapan was previously the Director General of ADB’s Southeast Asia Department since 15 December 2006 after having been the department’s Deputy Director General from December 2004. Mr. Thapan is a leading thinker on Water issues in Asia and a strong advocate of ADB’s water agenda.

Perspective from GlobeScan
Chris Coulter: Senior Vice President, Strategy and Collaboration, GlobeScan Inc.

Chris Coulter is a global strategist working with public affairs and corporate communications professionals in companies and not‐for‐profits to help them manage their corporate reputations, identify emerging issues and plan strategically. He has managed dozens of multi‐country, multi‐stakeholder projects for global companies, multilateral institutions and international NGOs. Chris is a recognized thought leader in understanding and capitalizing on global issues and societal trends, regularly briefing leadership organizations on how to keep ahead of curve. Mr. Coulter has an extensive background in global issues, including international economics and politics, trade theory and policy, international development, international migration. He has 10 years extensive experience in quantitative research analysis and
questionnaire development.

SustainAbility: Business Implications and Opportunities
Jeff Erikson: Senior Vice President, SustainAbility

Based in Washington, DC, Jeff leads SustainAbility’s work in the energy sector and has expertise and experience working with numerous industries, including electric utilities, oil & gas, automotive, chemicals, ICT, retail, food and health care. He is a key advisor to numerous senior corporate leaders and has broad knowledge of the wide range of sustainability issues and business challenges facing his clients. Jeff has deep expertise in developing sustainable business strategy, articulating the business implications of global climate change and water scarcity, facilitating senior executive discussions and decision-making, and designing and facilitating engagements with external stakeholders.

Discussion Period
Breakout Groups moderated by Circle of Blue

This interactive session gives listeners an opportunity to ask questions to today’s speakers. When prompted by Carl, you will select which group to join for discussion.
To ask questions of Keith Schneider and Jennifer Turner, press 1 on your telephones.
To learn more about some of the business implications from Chris, Jeff and Carl, press 2.

Services for this interactive teleconference were provided in collaboration with MaestroConference.

J. Carl Ganter: Director, Circle of Blue

About Circle of Blue
Circle of Blue covers the global freshwater crisis with original front-line research, dynamic data spaces, and engaging social media, using pioneering communications and information technologies to inform decision-making.

Water-Energy Slideshow

Discussion Transcript

J. Carl Ganter, director, Circle of Blue

Thanks for joining us for a dynamic hour with Circle of Blue. I’m J. Carl Ganter, director of Circle of Blue. We’ll be spending the next hour with experts in water, energy and business. We’ve gathered them to explore the emerging collision between water and energy in the world’s two largest economies. As most of you know, Circle of Blue is the leading platform for original frontline research, analysis and data on global water issues. We like to ask big questions and spot important trends, and we like to be on the ground in the best traditions of journalism, science and data collection to find out what is really happening. Last summer, we wanted to know if the U.S. faces a water dividend or a water deficit as clean energy squares off with the hydro-carbon economy. And then in China, the Woodrow Wilson International Center for Scholars’ China Environment Forum and Circle of Blue wanted to dig deeper into the fierce competition — and it really is fierce — between energy production and fresh water supplies in China. This work, which we’ve completed over the past eight or nine months, was funded by the Energy Foundation with support from the Vermont Law School and the Alpern Foundation.

Today we have gathered a superhero team to paint an initial picture of this unfolding story of China’s struggle with water and energy. We are going to start with our senior editor, Keith Schneider. He’ll give us an overview of our U.S. and China findings. Keith will be followed by Jennifer Turner, director of the China Environment Forum at the Woodrow Wilson International Center for Scholars in Washington. And then we’ll hear a global water perspective from Arjun Thapan; he’s special advisor to the president at the Asian Development Bank. Arjun will be followed by Chris Coulter of GlobeScan. He’ll share a few survey numbers that put this in context and some of the new work that could be done on the ground, or needs to be done on the ground, in China. And then from SustainAbility will be Jeff Erikson, and he’ll give us a business sense. So this will be really quick, probably around 60 minutes. We’ll also have an opportunity, again, for you to ask questions. We’ll close with the “what’s next,” so please keep this in mind. We’re here to share our findings and hear your feedback. We believe there is a large need for more on-the-ground work and business analysis, and a review of what we can learn, what’s happening in China and what’s happening in the U.S. So with that, on our last call Keith Schneider was dialing in from a pay phone in Inner Mongolia. This time he’s almost as far away, he’s in Northwest Michigan. Keith, take it away.

Keith Schneider

We have just concluded our year-long Choke Point project in which we took a look at the energy-water confrontation in the United States and the energy-water confrontation in China, and we’ve reached some pretty useful conclusions.

We found that energy uses more water than any other sector except agriculture.

The first thing we concluded is that in both the U.S. and China, energy demand and energy production is the top national priority. Energy development is the top national priority in each country. We found that energy uses more water than any other sector except agriculture. That is true for both countries. In the competition for energy and energy production, the energy sector has precedence in how much water it uses and how much water it is allowed to use, in both countries. We found that both countries are getting steadily drier. The U.S. is losing about 1 billion cubic meters of water a year, and China is losing 35 billion cubic meters of water a year, and they’ve been doing so since 2000. So China has lost about 350 billion cubic meters of water, which is roughly the same amount of water that flows past New Orleans in the United States on the Mississippi in about nine months, and that flows past Shanghai on the Yangtze in eight months — a lot of water. In the U.S., what this means, we found all kinds of interesting confrontations, but the most important confrontation that we found was occurring in the middle part of the North American continent. In the United States, there is a massive $100 billion investment being made in infrastructure to develop tar sands in Northern Alberta, Canada, and deep shale oil and natural gas in the United States.

You’ll see the extent of this development. This is the pipeline and refinery infrastructure being developed in the middle part of the United States to both transport tar sands oil, which is the largest source of imported oil through the United States right now and rising, and shale oils and natural gas to different refineries and processing plants all through the middle part of the country, using an enormous amount of water. And much of the development is occurring on the Great Plains, which this year are wet but in most years are dry. And so in the driest parts of the United States, there’s massive new infrastructure and fossil fuel development that are taking enormous amounts of water.

We are still using a lot of coal in the United States, and we could be using more coal, we could be producing more coal. Coal uses more water than any single industrial sector in the United States, and our coal production is almost a billion metric tons a year. And as you can see from this chart, it uses tremendous amounts of water. It has been pretty steady, and it might increase because you’ll see proposals to ship American coal to China.

In our reporting, we have found that the alternatives to the water-guzzling fossil fuel sector — which involve, principally, biofuels — use even more water than conventional sources of fuel. So irrigated corn for ethanol, irrigated soybeans for biodiesel, uses 600 to 1,000 times more water than using conventional petroleum to produce fuels. We found that the only two new alternatives, renewable sector alternatives, that use less water are wind and solar. But in both cases in the United States, wind and solar development — particularly combined — big solar fuel plants in California are in not decline, but in abandon.

The United States is turning away from its clean energy development pretty significantly. Photovoltaic solar is the only sector in the renewable energy industry in the United States that’s holding its own. The rest are in decline, and they’re in decline for two basic reasons. One is we have a political party that is antagonistic to the subsidies that are needed, public subsidies to develop these technologies. And two, at the grassroots, including here in Northern Michigan where I’m speaking to you from, the civic push-back is pretty significant. Last year, there were only five new gigawatts of wind power developed in the United States, which is half the wind power developed the previous year in 2009 in the United States. And we are seeing this urgency between wind and energy development pretty significantly developing with urgency in different parts of the country in different places.

…in Texas there are two very significant confrontations between water and energy developing there right now. One is in East Texas, southern East Texas, where the natural gas developers, who need five to seven million gallons of water to develop each of the natural gas wells that are being drilled down there, are in competition with the ranchers in East Texas for water. And the price of water is rising.

You’ll see we have the biggest drought in the history of Texas, or at least monitoring weather in Texas since 1895. And in Texas there are two very significant confrontations between water and energy developing there right now. One is in East Texas, southern East Texas, where the natural gas developers, who need five to seven million gallons of water to develop each of the natural gas wells that are being drilled down there, are in competition with the ranchers in East Texas for water. And the price of water is rising. In southern and south-central Texas in Matagorda County, the Lower Colorado River Commission — we have two Colorado rivers in the United States, one that flows to the West and one that goes through Texas — has delayed a decision about whether to grant a proposed new coal-fired power plant in Matagorda, permission to drain 8 billion gallons of water a year for its processing and cooling, a pretty significant decision in Texas. So we see these confrontations occurring with more urgency in different parts of the country.

Turn to China. We need to do a little bit of a geography lesson here for China. Eighty percent of the water in China is along the Yangtze in the South. Twenty percent of the water is in the North. Most of the energy reserves are in the North — almost 70 percent of China’s coal supplies is mined out of five provinces in northern China: Inner Mongolia, Shanxi, Shaanxi, Ningxia and Xinjiang, all of which are desert provinces. China is steadily heading to an energy shortage by the end of the decade, and here’s one of the reasons: 1950-2007, that is 57 years, it took the United States 57 years to triple its energy production from 35 quadrillion BTUs to 101 quadrillion. It took China 15 years to do that. And China’s energy production is increasing at a faster rate than we’ve ever seen in any country in the history of the world. They could be at 200 quadrillion BTUs by 2035.

There’s a good news and a bad news story in China. The good news story is that China has anticipated its choke points with energy and water because it is the largest desert country and it’s also a hydrological culture. So China has been dealing with its water supply for a long, long time. These are some of the things that China has already put in place that have allowed it to become the second largest economy in the world.

One is that they are recycling a lot of water. Beijing now has significant water recycling to the extent that their new apartments and office towers require gray water systems because they are installing gray water recycling plants to take their municipal wastewater and clean it up to the extent that they can use it for washing clothes and flushing toilets, and for gardening and those kinds of things. In agriculture, China has taken 20 million acres of cropland out of production. It is improving the efficiency of its irrigation, using less water in agriculture to produce more cropland. It still has some significant choke points coming, but the fact that it is reducing the amount of water in real terms and percentage terms is a big help to China because agriculture is the number one user of water in China. They are doing a lot in public policy. It has worked out a pretty interesting and pretty effective water conservation scheme in which nine provinces along the Yellow River Basin, for instance, share water and have specific allotments that are enforced in law. It’s not perfect, but it has allowed the Yellow River to have enough water to reach the sea, number one. And number two, to provide enough water for both growing the crops here — over 20 percent of China’s grain production comes from the Yellow River Basin — and to produce energy. But the Yellow River Basin is where a really significant choke point is developing between energy and water because it also is the largest energy production zone in China. Industry is recycling a lot of water. This is a major steel plant in Baotou, Inner Mongolia, which produces 10 million metric tons of steel a year, a lot of steel, and it recycles 98 percent of its water by law. And it’s enforced.

China’s clean energy sector is developing. This is the water-sipping energy sector, and it’s blossoming and growing like mad. This is a major wind development area in Gansu. And China has the good sense to develop the clean energy and solar sector in its desert provinces. They use less water and they’re going to be developing a lot of electricity.

Hydropower. China will double its hydropower generation over the next 10 years from 231 gigawatts to over 400 gigawatts. They’ve got some trouble in the South because the country is getting drier. But it’s able to replace some of its coal generating over the next decade. It’s not perfect. It also has a good news, bad news component to it: good news being that it’s using less coal, the bad news being that it doesn’t have as much water in the rivers to move the generators as it once did. China is moving a lot of water. This is the central canal in the South-North Water Transfer Project. This will take the water under the Yellow River. And this is part of the $60 billion (project). It’s going to help. But all of this is not going to help enough. And here’s why. Slide 24: China is producing 967 gigawatts of electricity; 700 gigawatts is from coal. Over the next decade, they’re going to double the amount of electricity, even though they are having all this non-fossil fuel development — including nuclear power that’s seawater cooled (there are problems there because of Japan), the hydro, the wind — still most of it will come from coal.

Slide 25: China’s water use is increasing by 6 billion cubic meters a year, and its water supply is dropping by 35 billion cubic meters a year. Slide 26: Right now, China is using 599 billion cubic meters of water a year. That’s a little bit more than we use in the United States. Over the next decade, it will use 670 billion cubic meters of water. That’s a 71 billion cubic meter a year increase in water. 71 billion cubic meters a year. This is important to know and understand. Slide 27: 50 billion cubic meters of that 71 is in the coal sector. Slide 28: Most of that coal, almost 70 percent of China’s coal production, comes from five northern China provinces, four of them in the Yellow River Basin. The last one in Xinjiang. That’s not going to change. Those five provinces will generate most of the coal that China is going to need to produce roughly 70 percent of its total energy.

…there are significant pressure points all through this economy caused by energy supply problems, which we conclude are going to get worse.

Slide 29: What are the economic effects of that? We’re already seeing it now because of shortages in supply. Prices are rising. And the Chinese government is very concerned about inflation. And there are significant pressure points all through this economy caused by energy supply problems, which we conclude are going to get worse.

Slide 30: The same thing is happening in the United States. China is the market for energy. The total supply of oil in the world is in serious competition. This is a sign of gasoline prices in May, when prices were $5/gallon in Washington. The price of energy in the United States has very significant ripple effects through the entire economy.

Slide 31: This is a statement by David Fridley, one of our top American analysts. He’s a scientist at Lawrence Berkeley National Laboratory, and studies energy demand in the United States and China. He told us in our concluding article in our Choke Point series that in the United States energy costs are already 8 to 9 percent of GDP. And we are going to be pushed into a deeper recession within a year because of this. It isn’t going to change those prices because of the very stiff competition for energy supply all over the world — and particularly in China. And some of that energy supply problem is because of water scarcity and water demand in the energy sector.

J. Carl Ganter

Thank you, Keith, for running through a 90-minute presentation in about 15 and a half minutes. Next up is Jennifer Turner. Jennifer is the director of the China Environment Forum at the Woodrow Wilson International Center for Scholars in Washington. Jennifer is a global expert on China environment issues and one of the key conveners working toward solutions.

Jennifer Turner, director, Woodrow Wilson international Center for Scholars China Environment Forum

I’ve been doing this work in China energy and environment for about 12 years. In the past couple of years, there’s been a lot of talk about China’s green revolution on the clean energy spheres. They have the policies, the R&D. Very comprehensive and encouraging – the solar, wind and the dams, and the cleaner coal technologies that Keith mentioned. China’s become this big hub for international clean energy investments that has helped drive the economy.

…water is underpriced, water rights are unclear, and the water pollution control laws look great on paper, but the enforcement has been quite weak.

But, I think, it’s important for people to know that the policies and efforts on water have been much less comprehensive in China. There’s been much less effort. There’s a lot of historical baggage I won’t go into today, but water is underpriced, water rights are unclear, and the water pollution control laws look great on paper, but the enforcement has been quite weak. And the weakness on the water side really undermines some of the efforts that Keith mentioned about how they are trying to be more water efficient in some places in the North, where they are doing the water trading. Ultimately, the Chinese still are very much focused on water supply management strategies. That’s why the big pipeline. And as our research and reporting shows, China needs to really be better than any other country in the world on managing its water because the pressure of energy on water is huge. What was really striking to me — I hang out with all these Chinese government, business and NGO researchers that focus on China environment — is that almost everyone was surprised by what we found in our Choke Point: China work. There have been suspicions that coal had a big footprint, but we really brought information that a lot of people in China hadn’t been thinking of. While they were alarmed to hear that coal has such a huge impact on water — 23 percent today — the first question they asked was, “What can we do?” Hopefully, we’re not dropping the ball on this work. I’m hoping that the China Environment Forum and Circle of Blue are going to take the information we got, and work on building partnerships and doing research exchanges. At the China Environment Forum we pride ourselves in helping people identify areas for cooperation. And, I think, when you look at the Choke Point: U.S. and Choke Point: China narratives that Circle of Blue has produced with us, you can see there are definitely some opportunities not just in regulation, but in investment, NGO cooperation and other fields. A lot of NGOs do work on clean energy in China, but almost no one is looking at the water-energy nexus. I’m hoping through this work we can encourage that. One final point I want to note is in the 12th Five-Year Plan, while the Chinese government is saying they want to go low carbon and look at lowering greenhouse gas emissions, as well, they did put in a lot more prioritizing on water and seeing it as a number one problem. There’s a good opportunity to work with the Chinese right now.

J. Carl Ganter

Jennifer, there are a few questions we received from the U.K., and maybe now’s a good time to respond. What do the findings mean for the Chinese government? Can energy and water authorities plan their overall consumption together, and if so, can this be achieved with the current institutional design in China?

Jennifer Turner

I’ll take the last one first because it’s so easy. Stovepipes exist in every country, and they’re quite solid in China – the fact that the water experts in China didn’t really know the information about what was happening on the energy front, on coal. And just so everyone knows, the information that we found is publicly available, but there really was no connection. That’s something I’m hoping for in our work in matchmaking over the next couple of years — to see if we can try to build some bridges. Institutionally, there isn’t really a linkage between those two — water and energy. But China is beginning to develop its national lab system more fully, and that offers an opportunity. Even Lawrence Berkeley National Lab, they’ve been looking into the water-energy nexus in China. Within the Chinese Academy of Science realm and at the university level, there’s a greater possibility to try to begin bridging that research gap. But it’s going to be tough. As Carl discovered in his Choke Point: U.S. reporting, there’s not a lot of interaction between those two bureaucracies in this country.

Jennifer Turner

During our Choke Point: China tour, we gave talks at the leading water research institute under the Ministry of Water Resources, and jaws dropped, and they said, “We need to research this. Can you help us?” Some of these people are going to come to D.C. at the end of July, and we’re going to be talking about this. At the Shanghai Academy of Environmental Sciences, we had mainly air and energy people in the room, and they saw the importance in it, and have started to ask me who should we work with and talk to to start developing this research agenda? The businesses we spoke to while we were in Shanghai and Beijing were also surprised. Everyone was surprised. We’ve raised the issue, and there’s a lot of hunger for information. And we’re really hoping that we can start not only getting more information, but also building partnerships and expertise between the U.S. and China on these issues.

Jennifer Turner

China has absolutely no wiggle room on water…. They are hitting their choke points now.

With the first question about what these findings mean for the Chinese government, I think that it helps to underscore how they need to prioritize water more, but to also maybe explore more revenues for lessening the water footprint of some of their energy development, even solar, thermal. Shale gas is also starting to develop rapidly in China, and I suspect that as the Chinese government looks into this kind of energy development, they will see that they have to regulate it quite strictly. Because China has absolutely no wiggle room on water, as Keith shows you in all those nice numbers. They are hitting their choke points now. And as climate change impacts their rivers more severely – they are already having a lot of drought in the last couple of years – they will have to act, and they will have to act quickly.

J. Carl Ganter

Thanks, Jennifer. The Choke Point: China tour was remarkable, and all of this coverage is online at Some people were messaging during the call and looking for more of the stats. All of those stats – which is a lot of new data in new context – are available online, also. We also have Arjun Thapan, who is special advisor to the president at the Asian Development Bank. Arjun is actually on a plane right now, but he sent us his thoughts about China and infrastructure, which I think are important for us to hear.

Arjun Thapan, special advisor to the president, Asian Development Bank

I’m Arjun Thapan from the Asian Development Bank. Carl has asked us to take a look at the water-energy-food relationships in Asia. I thought I would take a look at the water-food-energy relationships in China, which, as we know, is rapidly modernizing and industrializing. In China’s case I believe the main issue is water quality, which is in fact impacting the availability of total freshwater in the country. As far as the agricultural sector is concerned, that still consumes about 50 percent of the total water available in China. This will remain the case, I believe, until 2030. What is important to remember here is that efficiency gains are extremely important in the irrigated agricultural sector in China, as they are, in fact, anywhere else in Asia, so that freshwater is available for other sectors of economic and social development.

…thermo power in China, which is the driver of the energy expansion in the country, is going to increase its demand for cooling water. This is where the tensions are going to rise between the demands of the industrial sector in China and the demands for other sectors, including agriculture, as well as municipal water.

The big story, however, in China, by 2030, i.e the next 20 years, is certainly going to be the growth in the industrial water demand. This has been forecast to grow at about 3 percent annually — from a total of 130 billion cubic meters in 2005 to about 2065 billion cubic meters in 2030. And the highest growth, I believe, will take place in the next decade — between now and 2020. What this means is that thermo power in China, which is the driver of the energy expansion in the country, is going to increase its demand for cooling water. This is where the tensions are going to rise between the demands of the industrial sector in China and the demands for other sectors, including agriculture, as well as municipal water. Going back to the question of quality for a moment, I think, it’s important for us to understand that water salinity and water quality issues in China will actually render water unfit for use for agriculture and for a number of other consumptive purposes between now and 2030. This is not to say that there aren’t any options that China has or solutions for resolving some of these issues. There are questions of industrial efficiency. And I believe that these are going to lie particularly in thermo power, wastewater reuse, pulp and paper, textile and the steel industries. The solutions will principally involve technology efficiency measures, including, for example, in the power industry, condensed water cooling. In the steel industry, also condensed water cooling. In the textile industry, wastewater reuse. In the paper industry, intermediate water reuse and so on. So it is going to be important for China to understand that technology, along with other policy measures, is going to be the key to unlocking a whole suite of efficiency measures in the management of industrial water demand.

J. Carl Ganter

Thank you, Arjun. Next, we’re going to go to Chris Coulter and talk a bit more about some of the situations in China. Chris is the senior vice president at GlobeScan, and he is a maestro in polling and surveying, and finding out what’s happening on the ground. We have a few more slides from Chris, available at Chris, are you with us?

Chris Coulter, vice president, GlobeScan

Thanks very much for the introduction, and it’s fascinating to hear Keith’s perspective, and Jennifer’s and Arjun’s as well. It’s clearly a dramatic challenge that has been there on the table for a while but covered with such detail and rigor that it’s irrefutable. One of things that we’ve done at GlobeScan is track public opinion and some stakeholder opinion across the world, including in China. I wanted to share some overarching numbers to give you the context. Jennifer responded on what the China government’s challenges are, given the constraints and the choke point that it’s facing. We can see from our work that both experts and the public are concerned and anxious around water issues – that’s clear from our research. When we’re talking with sustainability experts on the work we do together with our colleagues at SustainAbility, experts across the world in sustainable development point to water as the number one sustainable development challenge — highly connected to climate change, naturally, but that’s the preoccupation, and it’s grown in importance in those esteemed people’s minds. The second important point: at the ground level in China, the societal level — people who are experiencing these challenges — there has been a dramatic increase in environmental concern over the years. That’s driven by a number of facts, overarchingly health. People really see the connection, that their choke point is related to the physical environment and their well-being going forward. Water concerns, resource constraint issues, and resource depletion — people are very preoccupied with and beginning to become sensitized to the limits. And of course air quality is also a piece of the puzzle. These things interact in people’s minds, even at the very average person on the street level, pretty tangibly. They understand these things are connected. They may have a difficult time articulating them, but they know something is wrong and needs to be corrected.

Experts across the world in sustainable development point to water as the number one sustainable development challenge.

The last piece of the puzzle that’s important in this discussion is that the Chinese, more than other countries that we’ve surveyed together with Circle of Blue, see a legitimate role for business to play in addressing this issue. I think, it’s an all-hands-on-deck scenario, where the urgency of the challenges is so great that people see the role for everyone. And businesses have an obligation and a responsibility to play that role. If you’re looking at the slides, there’s an expert view snapshot of sustainability issues, and we see water scarcity at the very top, followed by climate, water pollution, poverty, biodiversity, and food security. We know the inner relationships between all these things are pretty tightly knit, and well documented in Keith’s work. The next slide is a data point that shows between 2004 and 2010 the general public in China increasingly pointing to environment as a serious issue. And that’s quite a dramatic increase over the last few years related to what people are experiencing on the ground, sensitizing these issues.

Finally, the final data point here shows that agreement levels of people in China say that solving drinking water problems will require significant help from companies – more so than other countries that we surveyed with Circle of Blue a couple of years ago. This is the baseline. What we’re hoping to do in the future through the Choke Point: China initiative is to do important on- the-ground stakeholder interviews with very influential thought leaders from a range of groups. People involved in the environmental movement, government regulators in various ministries, business people – both ex-pats working there, as well as Chinese business leaders, and academia and media — people that are close to it — to document in their own understanding and words where the challenges are, what the awareness levels are, and then how can we integrate this primary research in a way that allows us to point to some solutions? The leverage and the wisdom of crowds, given the monumental task of the challenges ahead, will be really critical. The other exciting piece of this potential project is leveraging the learning we have in China, where, as Jennifer said, the choke point is happening right now. This gives us a bit of a head start on other regions of the world that are and will be experiencing the same issues, and helping to scale some of the solutions that can be uncovered through this collective feedback loop.

The leverage and the wisdom of crowds, given the monumental task of the challenges ahead, will be really critical.

J. Carl Ganter

Thanks, Chris. What’s really interesting in Chris’s work and the work at GlobeScan is the ability to really take a pulse and to, in a sense, look into the future. I continue to see the work we did together two years ago cited in many different company and NGO reports, as far as what’s unfolding and what people think should be top priorities. Regarding top priorities, looking at business, one of the biggest questions that we were asked after almost every presentation in China was: What should businesses do? What should policy makers do? What are the systemic changes in management? How do we deal with a choke point between water and energy, and what are some of the solutions and collaborative processes? With that, let me introduce Jeff Erikson from SustainAbility. Thanks for joining us, Jeff. So, fill us in. If I’m a business, what do I do?

Jeff Erikson

Thanks Carl. For point of reference, SustainAbility is a hybrid think tank and consultant, so most of our work in the consulting sphere is with multinational corporations. In our work with corporations, we often talk about the three steps to manage sustainability challenge. The first is awareness, the second is understanding, and the third is action. Let me just say a few words about the first, and we’ll save the other two for further discussion a bit later. My reference point is China, but most of what I say is relevant to both the U.S. and China choke points, and more broadly, effective approaches to managing the water-energy nexus no matter where you are. As we talk about awareness, I think the biggest implication for business is that companies need to change the way they look at water. And perhaps, if you remember back 20 or 30 years ago, you know that over past 20 or 30 years, because of environmental impact statements and other regulatory frameworks, we’ve kind of gotten trained to think about what our impact is on natural resources.

There’s a shift that needs to happen in our paradigm about water. It’s a shift from a gulp paradigm to a sip paradigm. It’s moving from thinking about water as a commodity to water as a resource. Thinking of water as in abundance to one that’s scarce and limited. And that’s occurring in more and more locations around the globe.

What I’m suggesting by going back to the future is to look not only at the impact we’re having on our water sources, but also at the impact that the availability and the quality of our water resources can have on our business. So it’s not just about reducing our operational consumption. It’s looking at water availability not as an environmental risk but as a business risk, as well as a business opportunity. There’s a shift that needs to happen in our paradigm about water. It’s a shift from a gulp paradigm to a sip paradigm. It’s moving from thinking about water as a commodity to water as a resource. Thinking of water as in abundance to one that’s scarce and limited. And that’s occurring in more and more locations around the globe. There’s a lot of facilities that our clients have in arid locations, and those numbers will continue to increase. Even if they’re not arid now, you can expect some changes in that water availability over the next several years. The paradigm shift needs to move from one of where it’s easy to waste water to one where every drop needs to be conserved. Moving from thinking about water as a cheap resource to one that’s costly, especially when you think about the costs associated with disruption in your business – your ability to actually continue to manufacture or to operate.

The shift needs to move outside the fence line. Right now, quite often companies think about the water footprint inside their own fence line. It needs to move from that fence line to the watershed, move from operations to the full value chain, not just the operations in the supply chain, but also from the product’s perspective as well. Shift from thinking about it in terms of an environmental impact assessment to a business risk assessment. And finally, from this paradigm of infinite growth – both economic growth and business growth – to one where we’re reaching our ecological limits. Jennifer mentioned this earlier, there’s this link between water and energy, and that link is becoming tighter and tighter, and it’s becoming more important to think about the two together. So, when you’re thinking about water reduction – doing everything you can to reduce your water consumption – you also need to think about doing everything you can to reduce your energy consumption, because energy is depending on water availability, but also, if there are water constraints, then you also may be limited – particularly in China, and relatively quickly – to the amount of power that’s available to your facilities.

In the climate change reading, we talk about both mitigation and adaptation. Well, companies need to be thinking in those terms for water as well, because both are critical. Companies must reduce their impact on water and energy resources, but they also need to adapt to a new operating environment – one where water is as critical an input as any other valuable raw material which ends up as an ingredient in your product. So that’s about awareness. The second two, understand and action, we’re going to address actually in a follow-up research project called Choke Point: China – Implications for Business. We’re currently seeking sponsors for that project. So, if you are interested in exploring further getting involved in that project, you can contact any of the speakers that were on the call today. Let me stop there and hand it back to you, Carl.

J. Carl Ganter

Thanks, Jeff. We’re coming up with about 10 minutes to go, and there’s clearly a lot more to learn. And nicely said, everybody. We’re planning to expand our coverage in China. There’s a lot more to do there, and a lot more to learn from what China is doing. We’re continuing this work with GlobeScan regarding business ramifications, and if you’d like to receive any details about how to participate in that, e-mail us at Now, I’d like to open it up for questions.

Victor (caller)

My question is for the general group. One of the issues with water, as we saw with the China map, is that sometimes, either based on where energy is created or new population centers, you have to transport water long distances. I was wondering, has any research been done to quantify how much electricity is required to haul water? Obviously, it will depend on elevations and things like that, but I haven’t been able to find any good information on that kind of data, and I think that’s really important to be able to quantify and point out, because it’s going to be a great cost when water infrastructure replacement has to take place.

Jennifer Turner

We do know that the state of California, I believe, uses about 19 percent of its energy just to move water.

Keith Schneider

We learned in April from the EPA that what’s called “embedded energy” – that’s what term they use for this – 25 percent of the electricity in China is used to move and treat water. Export it, treat it, purify it. A lot of the energy being used at these major manufacturing plants is moving, cooling or treating wastewater.

Jennifer Turner

In actuality, a lot of times, wastewater treatment plants are turned off in China because local governments see them as too expensive to run. In the past five years, China has increased its average water treatment rate significantly, due to pressures from the central government. I think, on average, they say about 70–75 percent is being treated. I think they’re really just referring to the big, urban areas, and I don’t think that’s counting what’s happening in rural areas, as well. But that stat tells you that when China starts treating more of their water, it’s going to have an even bigger energy footprint.

Jeff Erikson

I think, this points out a big dilemma that governments have about pricing water. As the availability becomes more difficult and more expensive as they start to move water great distances – not just in China but in other areas as well – there needs to be decisions made about whether you price that water at market, if you will, so that’s it’s not being subsidized. And that should drive efficiency and conservation. The challenge with that is that the people who are least able to pay shouldn’t be left out. There are many people who think that water availability and water access is a human right. So that’s a real dilemma that I think faces a lot of governments: What’s the right price for the government, acknowledging that the poor need water every bit as much as the rich, and individuals need it every bit as much as companies. One that I certainly don’t have an answer to, but I know that’s a dilemma, and it’s going to become more and more of a problem as water gets more and more expensive to move to where it’s needed.

J. Carl Ganter

Thanks, everybody. A couple more minutes here, if anybody has any more questions. So if we look into the crystal ball, and this is probably a question for Keith, what do we see coming down the pike between these two countries? What kind of policy shifts? We heard from David Fridley and others that this is a situation that will be on the tips of everybody’s tongues and at the top of their awareness within months, if not a year or two.

Keith Schneider

In the United States, we deem not to see this choke point between energy and water as urgent nationally. Clear evidence of that is the fact that the DOE, which had initiated a study in 2006 to look at the energy-water choke points and produced a very good report about it, was also asked by Congress to do the second part, which was what is the research agenda in the United States to begin to solve it? And the DOE has not been able to produce that report. They’ve had it through more than 20 rewrites since 2006, and it’s basically been on the shelf since the 23rd rewrite, which concluded in May of 2009. There’s now a lawsuit that has been brought to put more pressure on the Department of Energy and the Obama Administration to complete that report and get it done. There’s a legislation in Congress to actually shift the responsibilities of conducting that research to the National Academy of Sciences in order to get it out of the DOE. So it’s kind of an emblematic story of where we are as a nation in understanding this. That said, at the regional level is when there are droughts, in particular, or floods, as we’re seeing in the Northern Great Plains and in Texas this year. When water becomes an issue, it becomes a really important issue because everybody needs it on a daily basis, and that includes the energy industry. In North Dakota this spring, for instance, 10 percent of the new oil shale wells there were shut down because, essentially, the well pads were flooded. We look at these things on a regional basis.

Whatever they do is going to have monumental consequences for the economy of China and monumental consequences globally because they are the largest market in almost any commodity and product that you can think of — from producing grains to cars. They’re faced with really important, difficult decisions.

China has a more national look at this. Their issue, and they’re well aware of this and they’re doing a lot to solve it, but they’re growing so fast, and their energy production is so high, and they show no signs of ever wanting to abate the pace of their growth. Whatever they do is going to have monumental consequences for the economy of China and monumental consequences globally because they are the largest market in almost any commodity and product that you can think of — from producing grains to cars. They’re faced with really important, difficult decisions. For example, do they build a major pipeline from the Bohai Sea up into Inner Mongolia, desalinate that water, lift that water 90 million cubic meters a day – essentially, they’re going to need a nuclear power plant to do that – in order to get those reserves in Inner Mongolia. Will they do that? And then will they bring that pipeline across the northern part of the country all the way to Xinjiang so that they can get coal? They’re facing that decision now, and China researchers are looking at it very carefully. If China chooses to do that, what is the effect of that infrastructure development on energy infrastructure development around the world? Australia also is looking at new pipelines from the sea and desalinating water. And in the United States at Circle of Blue we’re anticipating at some point, when push comes to shove, and not too far in the distant future, between the energy producers on the dry Great Plains and the Great Lake Superior water protectors that there may be a proposal to bring a pipeline across Minnesota into the South Dakota-Saskatchewan area in order to be able to drill those wells because that’s going to be the center of natural gas and oil development for the United States. So, I think all of this is going to tip down to the contest between resource availability and economics. And, as David Fridley told us, that needs to be solved because we could be facing absolute energy shortages, not just those brought about by price increases and behavioral changes, but real energy shortages. To Circle of Blue, the picture is not looking rosy.

J. Carl Ganter

I was hoping to end on a cheerful note.

Jennifer Turner

I’m going to interject in there that The Guardian just posted an article about how Chinese water experts are saying that in northern China, which produces about half of the grain in China, about 40 percent of those crops are from groundwater. The Water Research Center at Beijing University said we can no longer be producing this much grain in the North, which is a pretty scary thing for the Chinese government – that’s a sign of the choke point. But, as I said before, there is an advantage of a one-party state: environmental authoritarianism. Sometimes, when they are faced with challenges, they can react quickly and aggressively. Maybe this announcement from Chinese water researchers saying “We really, really can no longer produce this much grain up here” will push the government to take some of these experiments that we wrote about in Choke Point: China regarding recycling in industries in the North and water trading experiments, and they’re going to make that national policy, and make it enforceable. I think, that it’s going to be fascinating. You all have a front row seat, here, looking at how the Chinese government is going to react to the water crises that are hitting them now. And we are particularly interested in the energy-water nexus angle of it as well, because it was pretty invisible earlier on, from a lot of people’s standpoints. And I think that it’s going to be exciting to see.

J. Carl Ganter

Absolutely. Well said, Jennifer. That nexus, the water-energy-food nexus and then add climate as a multiplier. There are a lot of shifts occurring, hundreds of billions of dollars at play, and my greatest hope is that all of us can play a role in informing those decisions. If you’d like to learn more about anything we’ve talked about today and to be part of our further coverage, or share what you’d like to see in our coverage and be part of the GlobeScan-SustainAbility business ramifications project, e-mail us at <>. I want to thank everybody for sharing your time with us, and especially thank MaestroConference, which is a cool platform for these calls.

We have a rare window of opportunity to define the future, and that’s what drives this team, particularly here at Circle of Blue and The Wilson Center. It’s a chance to guide our investments in time, technology, and money as these challenges and opportunities are accelerating. And it’s our chance to define how the world responds. We can learn from what China’s doing, and we may just have one chance to get it right. I hope we all keep in touch, and there will be much more on this soon. Thanks for joining us.

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