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Drought 'to be biggest world risk'

By Ambrose Evans-Pritchard 04/06/2008

A catastrophic water shortage could prove an even bigger threat to mankind this century than soaring food prices and the relentless exhaustion of energy reserves, according to a panel of global experts at the Goldman Sachs "Top Five Risks" conference. Nicholas (Lord) Stern, author of the Government's Stern Review on the economics of climate change, warned that underground aquifers could run dry at the same time as melting glaciers play havoc with fresh supplies of usable water. "The glaciers on the Himalayas are retreating, and they are the sponge that holds the water back in the rainy season. We're facing the risk of extreme run-off, with water running straight into the Bay of Bengal and taking a lot of topsoil with it," he said. "A few hundred square miles of the Himalayas are the source for all the major rivers of Asia - the Ganges, the Yellow River, the Yangtze - where 3bn people live. That's almost half the world's population," he said.

Lord Stern, the World Bank's former chief economist, said governments had been slow to accept that usable water is running out. "Water is not a renewable resource. People have been mining it without restraint because it has not been priced properly," he said. Farming makes up 70pc of global water demand. Fresh water for irrigation is never returned to underground basins. Most is lost through leaks and evaporation.

A Goldman Sachs report said water was the "petroleum for the next century", offering huge rewards for investors who know how to play the infrastructure boom. The US alone needs up to $1,000bn (£500bn) in new piping and waste water plants by 2020. "Demand for water continues to escalate at unsustainable rates. At the risk of being alarmist, we see parallels with Malthusian economics. Globally, water consumption is doubling every 20 years. By 2025, it is estimated that about one third of the global population will not have access to adequate drinking water," it said.

China faces an acute challenge. It makes up 21pc of humanity but controls just 7pc of the water supply.

Disputes over cross-border water basins have already prompted Egypt to threaten military action against any country that draws water off the Nile without agreement.

The shift to an animal protein diet across Asia has added to the strain. It takes 15 cubic metres of water on average to produce 1kg of beef, compared to six for poultry, and 1.5 for corn.

Goldman Sachs advises investors to focus on the high-tech end of the world's $425bn water industry. But beware the consumer "backlash" against bottled water, now viewed as an eco-hostile waste of fuel.

It is eyeing companies that produce or service filtration equipment (which can now extract anything from caffeine to animal growth hormones by using nanotechnologies), ultraviolet disinfection, desalination technology using membranes, automated water meters and specialist niches in water reuse.

It is difficult to find a "pure play" on water equities. GE is a market leader in the field, but the sector makes up just 2pc of its colossal turnover.

The revenue share of the world's top water companies that comes from the sector is Veolia (34pc), Suez (16pc), Ferrovial (20pc), Sabesp (100pc), Severn Trent (100pc), RWE (23pc), ITT Corp (32pc) and Pentair (75pc).

Goldman Sachs said the best option is to spread investments across a basket of small "potential takeout candidates" such as Badger Meter, Calgon Carbon, Clarcor, Pentair, Pall, Instituform, Hyflux, Tetra Tech, Acqua America and Watts Water.

Stanford professor Donald Kennedy said global climate change was now setting off a self-feeding spiral. "We've got droughts combined with a psychotic excess of rainfall," he said. "There are 800m people in the world who are 'food insecure'. They can't grow enough food, or can't afford to buy it. This is a seismic shift in the global economy."


Drought is a normal, recurring feature of the climate in most parts of the world. Having adequate drought mitigation strategies in place can greatly reduce the impact. Recurring or long-term drought can bring about desertification. Recurring droughts in the Horn of Africa have created grave ecological catastrophes, prompting massive food shortages, still recurring. To the north-west of the Horn, the Darfur conflict in neighboring Sudan, also affecting Chad, was fueled by decades of drought; combination of drought, desertification and overpopulation are among the causes of the Darfur conflict, because the Arab Baggara nomads searching for water have to take their livestock further south, to land mainly occupied by non-Arab farming peoples.

According to a UN climate report, the Himalayan glaciers that are the sources of Asia's biggest rivers - Ganges, Indus, Brahmaputra, Yangtze, Mekong, Salween and Yellow - could disappear by 2035 as temperatures rise. Approximately 2.4 billion people live in the drainage basin of the Himalayan rivers. India, China, Pakistan, Bangladesh, Nepal and Myanmar could experience floods followed by droughts in coming decades. Drought in India affecting the Ganges is of particular concern, as it provides drinking water and agricultural irrigation for more than 500 million people.

The west coast of North America, which gets much of its water from glaciers in mountain ranges such as the Rocky Mountains and Sierra Nevada, also would be affected.

In 2005, parts of the Amazon basin experienced the worst drought in 100 years. A 23 July 2006 article reported Woods Hole Research Center results showing that the forest in its present form could survive only three years of drought. Scientists at the Brazilian National Institute of Amazonian Research argue in the article that this drought response, coupled with the effects of deforestation on regional climate, are pushing the rainforest towards a "tipping point" where it would irreversibly start to die. It concludes that the rainforest is on the brink of being turned into savanna or desert, with catastrophic consequences for the world's climate. According to the WWF, the combination of climate change and deforestation increases the drying effect of dead trees that fuels forest fires. Paradoxically, some proposed short-term solutions to global warming also carry with them increased chances of drought.


Green agenda still key - Cameron
Tory leader David Cameron has said he will not be diverted from his "green" agenda by the economic downturn.
In a speech at Westminster's Royal Horticultural Halls, he said Britain "can't afford not to go green".
He called for rules ensuring all new coal-fired power stations include measures to trap CO2 and to encourage the development of "greener" cars.
Environment Minister Phil Woolas said Mr Cameron provided "salesmanship, not leadership" on the environment.
In his speech, Mr Cameron said he would not ignore the financial pressures on people, but would not drop his environmental agenda.
National security
He said any "green taxes" introduced by the Conservatives would be put into a separate fund for tax relief for families
And he said there were easy ways to encourage people to be more energy efficient - such as energy bills which allow each household to compare their gas and electricity bill with others.

The era of cheap oil is well and truly over
David Cameron
Fighting climate change was not a "costly diversion" and over-reliance on oil and gas was "bad for our national security," he said.
"The era of cheap oil is well and truly over," he added.
"So whether we need to cut our carbon or not- which we do, whether you believe in climate change or not - which you should, for the sake of our future prosperity and our current cost of living, we must wean ourselves off fossil fuels and go green."
Wind turbines
Mr Cameron said all new coal-fired power stations should have to include measures to trap CO2 emissions and said a Tory government would make researching tidal power in Britain a priority.
He also promised to improve energy efficiency in the home, to encourage "micro-renewables" like homeowners' wind turbines and solar panels by paying them a guaranteed price for energy they create.

The Tories' proposals should have been more ambitious given what today's technologies can deliver
John Sauven
And he pledged to draw up a long-term national transport plan aimed at aiding the economy and the environment - arguing that the government's arguments for a third runway at Heathrow airport fell apart under scrutiny.
Green groups welcomed his commitment to emissions standards, which they believe would rule out developments like the controversial new power station planned for Kingsnorth in Kent.
'Ahead of Brown'
Keith Allott, WWF-UK's climate change spokesman said it would "avoid the risk of locking the UK into a high-carbon future" and could boost investment in carbon capture technology.
John Sauven, of Greenpeace, said: "The Tories' proposals should have been more ambitious given what today's technologies can deliver but, by ruling out the proposed old-style coal plant at Kingsnorth in Kent, today's announcement puts Cameron way ahead of Brown when it comes to cleaning up our energy system."
However Environment Minister Phil Woolas said Mr Cameron provided only "salesmanship, not leadership" on the environment.
"The Tory leader continues to talk about introducing new green taxes 'on pollution' but still refuses to give any detail as to what they will be."
He said the government was acting to make Britain "a world leader" on climate change.
Later Mr Cameron and members of the shadow cabinet met US President George Bush - who is on the last leg of his European tour - at the US ambassador's residence.
He described it as a "very productive meeting" which included discussion of concerns about the presidential election in Zimbabwe, free trade and Afghanistan.
Story from BBC NEWS:

Published: 2008/06/16 16:45:55 GMT © BBC MMVIII