Global Innovation Outlook

Water Stimulus

With all the talk of stimulus packages and government funding of infrastructure projects lately, I got to thinking: what kind of impact will all of this new money have on our water systems?

Countries all over the world are firing up their printing presses and planning huge injections of cash to fund public works projects as a means of creating jobs and stimulating the economy. Much of that money has been earmarked for badly needed public infrastructure, including roads, public transportation systems, airports, and yes, even pipes, pumps and reservoirs.

That’s all good news for those of us who know how badly the world needs better water infrastructure. But there is even better news. A recent study by the Alliance for Water Efficiency estimates that for every million dollars spent on water efficiency in the United States, we can not only save as much as 10 trillion gallons of water, but also create about 220,000 jobs and increase economic output by as much as $2.8 million.

That makes investing in water efficiency its own fiscal stimulus plan. What kind of investments are we talking about? Some of the ideas are simple, water-saving devices: high-efficiency toilets, clothes washers, dishwashers and faucet aerators. Others are more involved, like smart irrigation, real-time efficiency monitoring, cooling tower retrofits, leak detection and energy efficiency audits.

The benefits to industry are widespread. From agriculture to manufacturing, even financial services. That’s why the authors of the report refer to water investment as “no regret” investments.

The study is specific to the United States, but the same scenario is playing out across the world. Thirsty nations cannot grow, and neither can thirsty businesses. So even the most libertarian among us can get behind this kind of investment.

Sustainable Agriculture

Perhaps it’s not surprising that the toughest nut to crack in the GIO study of Water and the Oceans is also the biggest: agriculture.

Though the subject of sustainable agriculture comes up often in our meetings – rightfully so, considering that 80 percent of the world’s freshwater resources are used for growing food – it is almost always accompanied by heavy sighs and impromptu bathroom breaks. It is a subject that tries the patience of even the most passionate water management experts. It is highly emotional, and often political.

Indeed, addressing sustainable agriculture is not easy. But nobody said this was going to be easy. We have heard many viable strategies that would ease the agricultural demand on freshwater resources. Drought resistant seeds show promise. Drip irrigation is appropriate for certain crops. And only planting crops that are appropriate for the climate in which they are grown is a popular suggestion.

All of these things are important steps towards meeting the world’s growing demand for both food and water. But one can’t help wondering: Are we thinking big enough? For example, if all the regional climates of the world are going to be changing significantly in the next 50 years, do we need to start shifting the world’s agricultural centers today? Will the vast farm plots of the Midwestern United States need to be moved north into Canada? Can we grow sufficient quantities of food in indoor or even urban environments, without straining energy resources too much? In other words, will the next green revolution be truly green?

As you can see, these are big problems that require big thinking. We’re hoping to gain more insight on this are in our two remaining deep dives on Water and the Oceans, and would love any thoughts you might have on the subject. We’ll also be exploring the challenges and opportunities that come with having an over-abundance of water. Amsterdam and Rio de Janeiro will be ideal locations for those discussions.

Urban Renewal

By any measure, Dubai is a new city. Its sparkling skyscrapers, utter modernity, and diversified economy all speak to new wealth and deliberate planning. And the continued building boom signals its future as a world-class center of commerce.

Because it is still growing, Dubai and the many urban centers here in the United Arab Emirates, have the luxury of learning from lifetimes of urban planning mistakes in the rest of the world. And because it is located in one of the most water-scarce regions on earth, it will have to take each of those lessons to heart.

As such, Dubai made a perfect setting for a Global Innovation Outlook deep dive that spent a great deal of time discussing the trends of urbanization and sustainable civil engineering. The meeting brought together representatives from all over the region, including Saudi Arabia, Abu Dhabi, South Africa, Poland, Great Britain, and Russia. There were non-governmental organizations (WaterAid and Global Ethics Limited), universities (University of Bristol and University of KwaZulu-Natal), businesses (Dow and Royal Dutch Shell) and government officials (Ministry of Environment and Water, UAE.)

The conversation was wide ranging, touching on everything from pricing to the need for integrated solutions to water management. But more than any topic, that of the major water challenges faced by the world’s cities took center stage.

Urbanization is forever altering population densities around the world. In 1900, only 13 percent of the world’s population lived in cities. Today, more than half of the world’s residents call a city home, a number that is expected to increase to 60 percent by 2030 (even amidst an overall population growth of nearly 50 percent.)

The effects of this trend on water management vary widely, but are significant and severe. In existing and ageing cities, the added burden on water supply, distribution and treatment systems will be overwhelming. Coastal cities will have to deal with the impact of increased runoff and waste on marine ecology. And cities that rely largely on desalination and other energy-intensive filtration technologies will require massive infrastructure development, at a high cost to both taxpayers and the environment.

Without reversing the urbanization trend (which some participants favored), these issues need to be addressed, and fast. There are a number of things that need to be done, such as fixing leakage in older city pipes, which can lose between 15 and 30 percent of their payload. But this is a fantastically expensive proposition, one that requires digging up thousands of kilometers of city streets. There are creative ways to spread those costs around however.

“If I had a wish, it would be that you would not be able dig a hole in London without every utility in the city getting a crack at it,” said Larry Hirst, Chairman of IBM Europe, Middle East, and Africa. “Gas companies, electricity utilities, and telcos all need to get in there to upgrade their systems. So why not do it all at once?”

There was also major concern about how waste water is treated and returned into the environment in these cities. Some participants suggested taxing discharge rather than intake, which has the dual benefit of cleaning up the waste and curbing demand. Others had more innovative, if not universally appealing, suggestions.

Christopher Buckley is the leader of the Pollution Research Group at the University of KwaZulu-Natal in South Africa. He favors the process of urine diversion toilets, which use no water to flush and separate so-called “yellow” waste from “black” waste. The idea is to use the nutrients in the yellow waste as fertilizer for crops, and extract energy from the black waste. The western world may turn its nose up at this approach, but the results are undeniable, and the process not only doesn’t use any energy, it produces it.

In other parts of the world, cities are literally being built from scratch. In Abu Dhabi, for example, a new “green city” called Masdar City, is under construction. Masdar, which means “the source” in Arabic, will use only renewable sources of energy, have zero carbon emissions, and zero waste. It will cost $22 billion, take 8 years to build, and be inhabited by 50,000 people and 1,500 businesses. Planners are still working out the details of how water will be supplied, distributed and reused, but it is likely to be a model for the many other cities being built throughout the world, including the so-called “Eco-Cities” under construction in China.

It’s easy to be cynical about the human race and the many mistakes we’ve made over the years. But seeing some of the progress and planning going into our future living environments is indeed encouraging. And seeing the passion and commitment of the people in the Dubai deep dive gives you the undeniable impression that the glass is half full.

A Complex System

Singapore rests at the southern tip of the Malay Peninsula. It is a 700 square kilometer island city-state that is blessed with a world-class shipping port, an industrious and innovative workforce, and absolutely no natural freshwater resources of any kind. None. Zero.

Yet somehow, despite a complete lack of this most basic resource, this tiny island nation has not only survived but thrived since it gained independence in 1963. In fact, it has been called the “hydro-hub” of the world, boasting some of the most sophisticated technologies and systems designed to collect, treat, and reuse water supplies.

Today, through a so-called “four-tap” approach, Singapore boasts sufficient water supplies for its more-than 4 million citizens and multi-billion-dollar industries. It uses a water catchment system that collects rainwater from nearly half the land area of the island, recycling facilities that produce NEWater (a branded product for both potable and industrial use), some of the largest desalination plants in the world, and a continuing but diminishing import strategy from its neighboring Malaysia.

That’s why the Global Innovation Outlook held simultaneous deep dives on both fresh and oceanic water systems yesterday. And the results were what you would expect from this hotbed of hydrology. The meetings drew from the considerable water expertise around Southeast Asia. Business, academic, and government leaders from Singapore, Vietnam, The Philippines, New Zealand, Australia, India, China and Indonesia were engaged in two different discussions on two seemingly different topics. But in the end, they both said the same thing.

“These are not separated systems,” said one participant. “We need to connect all the dots, and start treating these problems in a holistic way.” Indeed, though much of the scientific and academic communities have often approached the challenges of fresh and ocean water as two distinct areas of study, the feeling among this group was that those days are over.

The intricacies and interdependencies of the world’s water systems have come into shocking relief in just the last few decades. Rivers that are damned and drawn down never reach the sea, creating massive repercussions to oceanic ecosystems and impacting fisheries and food supplies. Runoff from agricultural and domestic land uses of freshwater remake entire coastal zones in a matter of years. Groundwater aquifers are invaded and spoiled by seawater in coastal municipalities, necessitating drastic and urgent action to protect the drinking supply.

The list goes on. Up to now, we had been calling these points of intersection between fresh and salt water systems “convergence.” But in truth, this is not the right word at all, for these systems were never divergent in the first place. They are, of course, all part of the same closed system, and any action taken against one will invariably have a major impact on the other.

Indeed, we must approach water issues in a holistic, integrated manner. In fact, many participants pointed to the fact that we cannot simply (or not so simply) try to address the challenges facing the world’s water systems. We must also understand the complex relationship water systems have on climate change, energy production, and agriculture. For example, desalination has allowed many water-strained cities to survive, but the process is excessively energy intensive, has major impacts on greenhouse gases, and increases the salinity of the adjacent sea water. As usual, there are no easy answers.

Water, food, energy, and climate. These are all complex, inextricably linked systems that require smarter management. Any attempt to address one cannot be taken seriously without taking each of them into account. And when viewed in this way, the challenge ahead of is undeniably daunting. But as one GIO participant reminded us: “You cannot try to swallow an elephant. You must eat it one bite at a time.”

Check back for more specific examples of which bites to take first. We had some fruitful discussions on sustainable agriculture, supplying water in developing countries, and advances that can be made in the global shipping industry. And next week we’ll visit Dubai, where desalination is king.

Water Management Survey

In our first two deep dives on Water and the Oceans, GIO participants repeatedly bemoaned the lack of data on water management. Whether it was the vast and deep oceans, the mysterious path of ground water, or our own everyday use (and abuse) of freshwater supplies, it seems everyone still has a lot to learn about this most precious of resources.

To that end, IBM has developed the Advanced Water Management Survey. It’s a simple questionnaire intended to get a baseline reading on industrial water management practices around the world. Things like: What are the most costly parts of water management? Or: How cost-justified are the different areas of water management?

Click here to take the survey and check back with the Corporate Water Footprinting event in San Francisco this December to see the results. We realize this small amount of information is merely a drop in the bucket, but every little bit counts.

Pricing Wars

For those of you inclined to engage in a philosophical discussion on whether water is a basic human right or an over-regulated, inaccurately priced commodity, log onto The Economist Web site for an online debate.

The Economist debate, sponsored by The Dow Chemical Company, a Global Innovation Outlook Partner, features some of the highest level discourse you’re going to find on this endlessly complicated, impossibly emotional topic. The basic proposition is this: Water, as a scarce resource, should be priced according to its market value.”

It is a theme that has come up time and again during our deep dives on Water and the Oceans. Those that advocate market pricing believe it is the only way to improve the efficiency of the distribution of water. Those opposed to market pricing believe that life-threatening inequalities will result if water is seen as anything but a shared resource.

As always, there are shades of gray however. Some of the participants in the GIO have proposed some clever strategies for driving more equitable distribution of water supplies. For example, there are tiered pricing models that would grant all human beings (and businesses) a predetermined amount of water units. This public allotment would be free and sufficient for all basic needs. But anything above and beyond that usage would cost extra. As your usage ratchets up, you pay greater dollar amounts for each additional usage. You would have plenty of water for drinking and bathing, but if you want to water your lawn as well, you might have to pay 50 cents a liter (don’t get hung up on these hypothetical prices.) Filling up the swimming pool might get you into the $1.50 range. And so on.

It’s hard to imagine one system working on a global basis (anything’s possible, right?). But you could see it working regionally. Of course, some would argue that this is already happening. I personally pay for my water (both by paying the private company that provides it, and through the taxes that pay to treat my waste water.) Bottled water is a $100 billion business. Even homeowners that drink well water pay for drilling and maintenance of the system (those of us who have incurred this particular expense know that the water that runs beneath our feet is anything but free).

In all these cases the vast majority of the costs are not the water itself. It is the distribution of the water. As one GIO participant noted, “God gave us the water, he just forgot to lay the pipes.” Which brings us back to the premise upon which this entire GIO is based: there is plenty of water in the world, it’s just not well distributed.

Virtual Water

Throughout the first two Global Innovation Outlook deep dives on Water and the Oceans, a concept known as “virtual water” has come up again and again. The idea is straightforward enough: virtual water is the amount of water used in the production of a good or service.

For example, it takes 246 liters of water to make one kilogram of potatoes. Or 10,600 liters to make one pair of jeans. In each instance, the amount of virtual water estimated in the production of these goods is a cumulative total of the entire development cycle. For potatoes most of the water is accounted for through irrigation of the crop. For jeans, the growing of cotton is taken into account, along with whatever industrial practices -- including dying and washing -- that are added into the process later on.

For some, these measurements are useful, especially when estimating the amount of virtual water embedded in different kinds of international trade. In other words, a water-scarce nation may want to reconsider exporting a water-intensive product, like beef or produce. It’s easy to see how understanding water use in various products could have an impact on trade strategies in some regions.

Many people feel that the concept of virtual water would also be useful in raising consumer awareness of water use. Some have suggested that products should come with labels that estimate their virtual water content. And that some day consumers would add virtual water to the list of things on which they base their buying decisions.

But there are a few important shortcomings to the notion of virtual water. For one thing, it doesn’t take into account the source of water that was used for the product. Wheat that was grown using 80 percent rain fed water supplies should have a different virtual water content than wheat grown using 80 percent irrigation. Desalinated water has a greater environmental toll than surface water. And so on.

Virtual water also makes the assumption that if that water had not been used to grow potatoes or make a pair of jeans, it could have been used for some other purpose. This is not always the case. Distinctions also need to be made between the use of “green” water (from rainfall), “blue” water (surface or groundwater), and “grey” water (polluted discharge.)

See how quickly a simple measure of water use can become too complicated for the average consumer to worry about? Virtual water is instructive to be sure. But it’s not clear whether it is a viable tool for shaping trade policy, or even informing consumer decisions. To do that, far more variables need to be taken into account, and distilled into easily understood, actionable metrics.

The Economics of Water

Holding a Global Innovation Outlook deep dive on Water and the Oceans in Atlanta was no accident. Atlanta is among the most water-stressed areas in the United States at the moment. Over the last 18 months, one of the worst droughts in the history of the Southeast has brought with it mandatory conservation, a three-state scramble for resources, and an acute awareness of how climate change is redirecting fresh water supplies the world over.

For this reason, the tenor and content of this deep dive was far different than our last one in San Diego, which focused more on ocean systems. The participants were well-equipped to tackle the multi-faceted issues of our so called land use of water, which includes agriculture, industry, and domestic consumption. There were representatives from the Georgia Environmental Protection Division and Atlanta’s Bureau of Watershed Protection; experts on water and energy technologies from Siemens Water Technologies, Energy Recovery Inc., and Fieldstone Energy Corporation; and executives from some of the most water-intensive industries in the world, including The Coca-Cola Company and Nestle Waters. And finally, there were economists, financial advisors, and investors, all focused on the rapidly evolving economics of water.

Given this makeup, it is not surprising that we engaged in a passionate and purposeful discussion of the price of water. “People call me up all the time and say they want to invest in water,” said one participant from a global investment bank. “I tell them ‘Sure, pick up and copy of the Wall Street Journal and tell me what it’s trading at.’”

Water, or course, has no single price. It is not a commodity. It cannot be traded in the futures market. In fact, in many parts of the world, water itself is free. It’s the cost of the pipes and other means of distribution (or treatment) that gets passed along to the consumer.

It is a curious fact of water that though it is universally valuable and increasingly scarce, it is not monetarily valued in any consistent way. As David Zetland, an economist and prolific blogger on water issues at Aguanomics.com, pointed out, it’s known as the Diamond-Water Paradox, which questions why diamonds, which are far less useful, command a vastly higher price in the market. Adam Smith explained it thusly: The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.

In this sense, one could argue that water is already priced fairly. But it would be hard to argue that it is priced in a way that encourages sufficient conservation, a source of frustration for many who seek to curb overall demand, and in particular waste, of freshwater supplies (though perhaps not for much longer).

All of which makes it particularly difficult to invest in water, as our investment banker friend rightly pointed out. Difficult, but not impossible. There are ways to invest in water that can not only turn a profit, but encourage conservation at the same time. Steve Vassallo is a Principal at Foundation Capital, a venture capital company focused on information technology and Cleantech. While most investors are looking for ways to make money by increasing water supplies to water-constrained areas, Vassallo is looking the other way. Play the video to hear him explain:

The real beauty of demand side investing is that decreasing demand has a much greater impact back upstream in the supply chain. In other words, if a consumer saves 100 gallons of water or 5 kilowatts of energy a week, the water treatment facility or electricity production plant enjoys an order of magnitude of savings on the backend, largely because of the stunning waste during distribution of these resources.

There were many other insights that we’ll tease out over the course of the next few weeks, leading up to the Singapore deep dive in October, so come back often and contribute freely.

The Need to Know

Global Innovation Outlook topics always have a sense of urgency to them. By definition they are global challenges that require immediate and substantial innovation. But this is particularly true with Water and the Oceans. And so with that in mind, we wasted no time in our first deep dive in San Diego, asking the toughest question right out of the gate: If tomorrow you were elected Global Water Czar, what would be your first edict?

The room was packed with experts that represented all aspects of the hydrological cycle, from the deep ocean to freshwater drinking supplies in developing countries. There were oceanographers from the University of Rhode Island, the Bermuda Institute of Ocean Sciences, and the Scripps Institution of Oceanography. There were conservationists and researchers from The National Geographic Society and The Beacon Institute for Rivers and Estuaries. There were venture capitalists, NGOs, and representatives from two of the most influential corporations in the world, The Dow Chemical Company and General Electric.

So it’s not surprising that the answers to the Water Czar question ran the global gamut, from general to specific, from practical to fanciful. Here is a partial list of the edicts:

Create an international commodity trading market for water
Ban bottled water
Require companies to report water usage on balance sheets
Mandate drip irrigation for all agriculture
Prohibit building cities in the desert
Require that all rivers reach the sea
Enforce the U.S. Clean Water Act on a global basis
Eliminate polluting discharge
Order a global evaluation of water assets
Tax nations based on the quality of water that leaves their system, not how much they use
Make a movie about water scarcity (a la Inconvenient Truth)
Initiate a massive global education campaign
Prohibit showers one day a week
Resign

If nothing else, this exercise and the responses it yielded demonstrates the breadth of action needed to address the many challenges before us. It also highlights the stunning complexity of global water systems, and the need for holistic, informed approaches. In fact, one participant after another bemoaned the crippling lack of data, on everything from groundwater to ocean ecosystems, upon which to base decisions.

“There is an admission that all experts need to make on their own ignorance,” said one participant. “We simply don’t know enough.” It was a humbling sentiment that was echoed time and again throughout the day. “We only know 3 percent of the oceans,” said another. “We have barely scratched the surface of understanding,” said yet another.

Dr. Anthony Knap, the President and Director of the Bermuda Institute of Ocean Sciences, puts the challenges in studying the oceans in proper perspective in this video clip:

The litany of different systems that need further measurement and understanding is indeed daunting. There is a need for better data on the true global value of water; on the effects of climate change on the ocean; on the ocean’s ability to sequester CO2; on industrial consumption and discharge; on the migration patterns of marine life; on the trade offs between food, energy, and water use; on acidification of the oceans; and so on.

Fortunately, the cross-section of experts in the room in San Diego did manage to open each others’ eyes to their respective challenges. And there was a sense in the room that even as we discussed the dire need for better, more integrated information on ocean, freshwater, and climate systems, we were already getting smarter about how to get it done.

Water Bubbles

Those of you who enjoyed a proper weekend without the intrusions and distractions of work, the Internet, or a stray newspaper woke this morning to the stunning news that two of the largest and most revered investment banks in the world were on the brink of insolvency. Add to that the desperate state of one of the largest insurance companies in America and you’ve got a lot of hand-wringing going on in the world financial markets.

These are uncertain times, to be sure. And the events of the past three days have cast new light on the stability, or lack thereof, of the financial systems that underpin global commerce. But what’s this got to do with water and the oceans?

The successive speculative bubbles that fueled (and then gutted) the technology and housing markets (and one could argue for oil here as well) were the result of complex financial constructs that distorted the reality of supply and demand in the markets. That is not to say that Wall Street is entirely to blame. We were all complicit in these distortions, individuals and banks, from London to Tokyo to Shanghai. Nobody likes to be left out of a bubble.

With regional water scarcity currently hitting some parts of the world hard, the idea of new pricing structures, water futures trading, and other mechanisms of finance playing a role in alleviating, or at least redistributing, global water supplies has been gaining traction. In principle, these concepts are sound. They are based on the belief that if water were to be priced as a global commodity, with that price being tied to supply and demand, it would create new efficiencies in global distribution and eliminate waste in regions that enjoy a surplus. (To some extent this is already done in the form of the bottled water industry.)

But if these pricing structures are to be adopted, they must be carefully crafted to prevent the kind of supply disruptions and wild price swings that plague other commodities that trade on global markets. Paying $150 for a barrel of oil is a major financial inconvenience and can be devastating to energy-intensive businesses. But imagine the global consequences of a speculative bubble that quickly drives up the price of water.

This is just one of the reasons why we are in dire need of more accurate information about water. We know that we have enough water on the planet for all our needs, but where is it? How are the routes it takes changing? Where is it being wasted? How is it being consumed? Only in a world in which these questions and others can be answered with precision can we even consider setting global prices on such a critical resource.

CORRECTION: In a blog entry dated June 6, 2008, we mistakenly characterized data tethering as a service that allows an individual to “know where a piece of personal information about them comes from and where it goes throughout its lifetime.” This is incorrect. Data tethering actually ties the original record, or master copy, to all subsequent copies of the data. Even if the data is passed along an infinite amount of times, one change in the master copy is then reflected throughout the data chain. Apologies to Jeff Jonas, Chief Scientist, Entity Analytics, IBM Corporation, who spoke about data tethering at the Vancouver Deep Dive in early June. Here is a link to Jonas’ explanation of data tethering at his blog.