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Water Will Be the Critical Limiting Factor of 21st Century Production

Morgan Stanley’s Global Investment Committee recently released a report in which it argues that the “perfect storm” of declining water supply and rising demand are likely to make water the critical limiting resource of our time. The report, entitled “Peak Water: The Preeminent 21st Century Commodity Story,” paints a convincing picture of a world that is on the brink of a severe water crisis. It also offers hope by presenting new technological solutions and opportunities emerging in response. Facing rising costs and dwindling supply, businesses and utilities will be forced to invest in water infrastructure and technology, making the industry ripe for growth.

The many interrelated forces converging to exacerbate the water scarcity problem are likely to soon have a visible and painful impact on the world:

  • Steadily Increasing Demand: Although population growth is the major cause of increasing global water withdrawal levels, the overall rise in demand for water has outpaced population growth by a factor of two. The withdrawal rate in the US is expected to increase by between 10 and 20 percent over 1995 levels by 2025.

  • Extreme Drought Risk: Steadily increasing temperatures from climate change and global exploitation of water resources have significantly increased the threat of drought. By 2030, nearly two thirds of the US is likely to be drastically drier which will put large parts of the nation at risk for extreme drought.

  • Disappearing Snow Cover: In the Northern Hemisphere, monthly snow cover has declined 1.3 percent every ten years for the last decade. The United Nations Environment Programme (UNEP) predicts that Earth’s middle latitudes will experience snow losses of 60 to 80 percent by the end of the century.

  • Mounting Agricultural Pressures: Agriculture uses account for 70% of all water withdrawals. Growing global affluence is increasing demand for more water-intensive foods like meat, which requires 10 times more water than rice to produce. Global efforts to reduce poverty and famine will also require increasing agriculture output, and therefore water use.

  • Rapid Urbanization: Currently more than half of the global population lives in cities. In 1990, the world had 10 cities with populations of over 10 million; by 2020, the UN predicts that number to increase to 27. Urbanization, which is usually associated with an increasing standard of living, can increase a person’s demand for water to five times that of the basic water requirement.

Given these trends, the report’s authors predict that the global water industry will experience a drastic transformation that involves significant investment in water technology. Capital expenditures on water infrastructure are expected to increase from $90 billion in 2010 to $131 billion in 2016. The investment is likely to be focused in few different areas:

  • More Efficient Irrigation: The ability to sustain the world’s growing population is dependent on increasing agricultural output. Increasing output will require the use of more efficient irrigation techniques that produce more “crop per drop.” The use of drip irrigation can increase efficiency by 50% over flooding, which is the most common irrigation method used in developing countries. These improvements are expected to more than double global output by 2050.

  • Drought-Tolerant Crops: Recognizing that climate change is making the world both warmer and drier, biotechnology companies are using both genetic engineering and conventional breeding to develop crop varieties that can maintain their output even in drought conditions.

  • Advances in Water Treatment and Reuse: When it comes to creating water from non-freshwater sources, wastewater treatment costs about a third less than desalination. As such, investment in water-reuse plants is experiencing significant growth. Output from water-reuse facilities is predicted to increase by 52% from 2010 to 2016. 

  • Cheaper Desalination: Innovations in desalination technology using more efficient membranes and energy recovery devices have been able to significantly drive down the cost of this traditionally expensive process. These new innovations include a biomimetic membrane that mimics the water-transport process of living cell membranes. Global desalination capacity is expected to more than double from 2009 to 2016.

  • Virtual Water: Many countries are addressing their domestic water scarcity issues by investing in land in other countries to produce more water-intensive crops. If that land has higher water productivity than domestic land, then this strategy can result in overall global water savings.

Using some pretty powerful statistics and well-illustrated graphs, the report makes it clear that peak water is an issue worth paying attention to. And the fact that the information is coming from a traditionally conservative institution is in itself notable. Hopefully this report will serve Morgan Stanley well as a way to convince its customers that investing in solutions to the water crisis is indeed a worthwhile.

Kara Scharwath is a corporate social responsibility professional, marketing consultant and Sustainable Management MBA Candidate. She is currently working as a Graduate Associate in Corporate Citizenship at the Walt Disney Company while pursuing her degree at Presidio Graduate School. Follow her on Twitter @karameredith.

Kara Scharwath

Kara is a corporate social responsibility professional and marketing consultant with expertise in consumer research and environmental science. Currently, Kara is working as a Graduate Associate on the <a href="http://corporate.disney.go.com/citizenship2010/">Corporate Citizenship</a> team at the Walt Disney Company. She is also a founding partner of <a href=http://besui.com/">BeSui Consulting</a>, a boutique marketing consulting firm specializing in consumer insights and marketing communications.

Kara graduated from Rutgers University with a B.S. in <a href="http://admissions.rutgers.edu/Academics/AcademicContent.aspx?CAMPUS=New… Policy, Institutions and Behaviors</a>. She is currently pursuing her M.B.A. in Sustainable Management from <a href'"http://www.presidioedu.org/">Presidio Graduate School</a> where she is exploring the impact investing space and working to identify new ways to increase access to capital for start-ups and social ventures. Follow her on Twitter <a href="http://twitter.com/karameredith">@karameredith</a&gt;.

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