Emerging Trends

Managing the Global Water Crisis Offers New Opportunities

Overview: The growing water shortage underscores the need not only for comprehensive conservation plans and re-allocation of water resources but for the development of new technologies and facilities that will convert non-potable water into fresh drinking water -- essentially harnessing what many investors and commodities traders are dubbing "blue gold." Pillsbury Winthrop Shaw Pittman LLP partners Sheila Harvey and Tom Campbell talk about proposed business and regulatory solutions to the crisis and how diverse stakeholders are affected.

Why are we experiencing a water crisis now?
First is the demand factor; the world’s population is growing and consuming more water -- more than many traditional sources, such as underground aquifers and surface reservoirs, can reliably sustain. This is not just an issue for developing countries but also for places like California and the southeast region of the United States. For example, in California, hundreds of proposed community development projects have been denied permits because there simply isn’t enough fresh water to support them.

Secondly, only a portion of the world’s water -- that is, freshwater that is accessible, uncontaminated and treatable -- is actually fit for consumption. The World Health Organization estimates that more than 20 percent of the world’s population lacks access to safe drinking water.

How are prospects for a water crisis playing out on the legal front?
Throughout the country, local governments are reclaiming control over municipal water systems -- often the same water works that were recently privatized.

We may see more border disputes, such as one currently between Georgia and Tennessee, over where a controversial 19th-century survey set Georgia’s boundary with respect to the Tennessee River. There is also a dispute between Georgia, Alabama, and Florida regarding access to waters from the Apalachicola, Chattahoochee, and Flint rivers. The problem centers around Georgia, which the two other states say are extracting a disproportionate share of water through Lake Lanier, reducing their water supply downstream. Federal law requires that when a river flows between two or more states, each state has equal rights to water.

In Feb. 2008, the U.S. Court of Appeals ruled that a 2003 agreement reached between Georgia, the Army Corps of Engineers, and Atlanta-area water users was illegal. Gov. Crist of Florida said he would continue to work with Governors Riley (Alabama) and Perdue (Georgia) to resolve all long-term water conservation issues facing the states.

What are the worst-case scenarios?
Famine and deaths resulting from drought, and natural resource-related political instability and warfare are the most devastating scenarios. In less-tragic economic terms, you could see a painful adjustment for businesses and consumers as they deal with the increasing cost of water in the coming years.

Three quarters of the planet is covered by oceans -- what technologies are available to convert seawater to fresh water?
Desalination is a proven path to drinking water and is already common in the Middle East and Mediterranean regions, but faces an uphill road in many markets, especially the United States. Desalination has its own unique challenges, including huge capital costs to build plants and regulatory concerns, environment impact surveys, and real estate developers' and tourism groups’ opposition. Once built, desalination plants also require a great deal of energy to run, which poses additional problems giving the rising costs of oil and ongoing energy shortages.

Nonetheless, some desalination projects are extremely innovative and actually can address the question of energy and water shortages at the same time, which might help reduce opposition. For example, the Australian Commonwealth Scientific and Industry Research Organisation (CSIRO) recently began deploying JetWater Thermal Desalination systems off the western coast of Australia. These systems provide a wide array of desalination services (seawater, brackish groundwater, and remediation of industrial wastewater) while conserving precious energy resources like oil by running entirely on solar power.

Are there any other technologies currently being explored besides desalination?
There is a great deal of capital going to "cleantech" and other environmental research, and water is certainly part of the picture. Because we know where the world’s water lies, there is a premium on technologies for treating, recycling, and conserving it in order to make it a more renewable resource.

For example, a report by the U.S. Climate Change Science Program, "Preliminary Review of Adaptation Options for Climate Sensitive Ecosystems and Resources," notes that 70 percent of water withdrawals in the U.S. are devoted to agriculture, and that climate shifts will increase competition for this water. It recommends, among other things, offsetting decreased availability of water by increasing agricultural, municipal, and industrial reuse of wastewater. Look for new existing and future conservation standards to be increasingly referenced in business plans, and serve as the benchmark to beat.

The International Energy Agency recently estimated that in order to reduce greenhouse gas emissions 50 percent by 2050, global investment in renewable energy, energy efficiency, and carbon sequestration will need to reach roughly $45 trillion by that date. Just as there will be opportunities to build and invest in wind power farms, solar energy, nuclear, and other alternative energies, the call to build desalination plants, effectively recycle wastewater, and other technologies that will help maximize or renew water resources will be part of the mix.

All risks considered, the world's leading investors are recognizing that a transition to a clean energy economy is the single biggest economic opportunity of the 21st century -- and possibly the biggest economic opportunity ever. The U.S. represents one of the largest renewable energy markets, so merchant bankers, private equity firms, and venture capitalists are all educating themselves about how to navigate this immature yet promising marketplace and make the right decisions to drive the industry forward and avert future catastrophe.

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