Water Scarcity Risk: Not Just a Local Political Issue

mining-and-water
There are few issues as politically charged as water, not only because people’s survival depends on it, but also because it is a critical component of so many industries. Agriculture, food and beverage manufacturers, refineries, paper and pulp companies, electronics manufacturers, mining operations and power plants—are of these rely on a continuous and reliable water supply.

When companies move into markets with weak infrastructure or questionable rule of law, drawing on these resources can quickly bring them into conflict with local citizens and, sometimes, the host government. Because of its vital importance, however, water scarcity has become much more than a local issue for businesses.

Water shortages can lead to conflict as competition grows for diminishing resources, as any scarce resource on which people depend is likely to become political at some point in time. One scenario that repeatedly unfolds is as follows: A mining operation depletes local water resources or has a tailings dam accident that contaminates a local river, a protest ensues and the host government intervenes in the project. Hydroelectric power projects can create a number of similar political risks and some different ones, including relocation of local villages.

In recent years, however, awareness has grown about how water scarcity risk affects political risk at the national and international levels, requiring a different type of analysis. The depletion of rivers, lakes and streams has led to more dependence on below-ground water. More than two-thirds of groundwater used around the world is for irrigating crops, and the rest of below-ground water is used to supply cities’ drinking water. For centuries, below-ground water supplies served as a backup to carry regions and countries through droughts and warm winters that lacked enough snowmelt to replenish rivers and streams. Now, the world’s largest underground water reserves in Africa, Eurasia and the Americas are under stress, with many of them being drawn down at unsustainable rates. Nearly two billion people rely on groundwater that is considered under threat.

What makes the problem particularly difficult to solve in the emerging markets is that small, often subsistence, farmers are doing the drilling for water. The U.S. military called climate change, including reduced access to water, a “threat multiplier,” potentially threatening the stability of governments, increasing inter-state conflict, and contributing to extremist ideologies and terrorism.

It is always difficult to establish causality with something as complex as politics, but there certainly is circumstantial evidence that water scarcity was a factor in the Syrian uprisings that led to the country’s civil war. In Yemen, some hydrologists warn the country may be the first to actually run out of usable water within a decade, and combatants are making a bad situation even worse by using water and food as weapons against opposing villages. In Sudan, desertification and water scarcity have been cited as having a strong link to the Darfur conflict.

Since water does not respect political borders, the conflicts can become international.  One of the most high-profile disputes has been Ethiopia’s damming of the Nile River for hydroelectric power, potentially threatening Egypt’s ancient water source. In 2013, Egypt’s then-president said he did not want war but he would not allow Egypt’s water supply to be endangered by the dam. Fortunately, in 2015, Egypt, Ethiopia and Sudan signed an agreement allowing dam construction, provided that it did not cause “significant harm” to downstream countries. But the studies into how much harm it could do have not even been completed yet, and the dammed water could be diverted to uses other than power. Thus, the political risk surrounding the Nile River is far from over. Since 1975, Turkey’s construction of dams for irrigation and power have cut water flow into Syria by 40% and into Iraq by 80%, setting off disputes there.

Companies are accustomed to building water into their business plans in developing countries. Environmental impact assessments and proactive community relations programs can bring potential problems to the surface before they start, helping companies manage water in an environmentally and socially prudent manner. The geopolitical risks around water scarcity can be more difficult to manage, however. In this area, companies should consider building water scarcity into their political risk management and forecasting frameworks, factoring it in when making investment and supply chain decisions. If governments cannot find ways of sharing this limited resource, political violence risk may become even more of a factor for international businesses to consider.

This article previously appeared on Zurichna.com.

Natural Barriers Promote Coastal Resilience, Reduce Costs

WetlandsNEW YORK—Hurricane Irene and Superstorm Sandy had devastating impacts on the northeast coastline, debilitating parts of New York and New Jersey. While also in the path of the storms, Delaware saw minimal impact, which the state’s former head of natural resources and environmental control, Colin O’Mara, attributed to its conservation efforts.

Now president and chief executive officer of the National Wildlife Federation, O’Mara spoke at the New York Recovery and Resilience Leadership Forum here June 2, explaining that the state had been building up natural barriers and testing its resilience with various resources.

“During the storm we were checking sandbags and making sure systems were in place and I was wondering if these systems were going to hold,” he said. “What we found was that the system did work.” He noted, “One of the reasons you haven’t heard much about what happened in Delaware, compared to New Jersey and New York, is the state’s investments in wetlands, living shoreline projects and oyster beds. These natural systems can absorb the shock of crashing waves and absorb water.”

A living shoreline is a habitat-friendly alternative to rip rap, bulkhead or stone revetments, creating wetland habitat that supports blue crabs, oysters, fish, birds and plants. They can also stop erosion, increase water quality and protect the shoreline from erosion, according to the state of Delaware’s website.

A number of municipalities across the country are making significant advances in natural infrastructure, O’Mara said, “and you are not seeing big taxpayer bailouts of those communities because these systems work.”

At the same time, he noted, many areas do not encourage these types of investments. “In fact, there are a number of policies that are actually putting people in harm’s way,” he said. “We’ve been trying to think through how to have traditional market forces work to the advantage of resilience, instead of having a massive bailout after an event, which is a liability to the taxpayer.”

Conversations about mitigating with natural resources, however, often get nowhere because people believe their insurance programs will bail them out. “Because of government programs, people are actually paying so much less than the insurance value they are receiving, that natural resources as a solution will lose,” O’Mara said. As a result, “All of a sudden that coast seems more developable because the landowner developing it isn’t actually bearing the cost.” The real problem is that, after the money has been made and a homeowner is living in the house, the risk is still there. “So you’ve privatized the problem, but you have socialized all of the risk,” he said.

Instead, O’Mara believes it is critical that information about the real costs of destroying a dune, along with the protections it brings be available. “This isn’t an easy conversation, but it is actually an area of commonality,” he said. “Whether you want to reduce government spending, reduce liability or foster more private sector activity, this is an area that shouldn’t be partisan at all.”

Projects of this nature are currently in the works in New York City; Cape May, New Jersey; and Boston, Massachusetts. Such spending on the front end produces much higher savings in the long run, O’Mara said, noting that putting natural resources to work can lower insurance rates and generate private sector involvement.

“We can do things a lot smarter and be a lot safer than we are right now,” O’Mara said. “This should be as bipartisan as anything we do in this country. The economics make sense, the science makes sense and the social science makes sense.” After all, at the end of the day, “people just want to be safe,” he said.

Fort McMurray Wildfire Insured Losses Up to $6.9 Billion

Ft-McMurray map

NASA Fort McMurray wildfire map

Insured loss estimates from the wildfire in Fort McMurray, Alberta, Canada, are projected between $3.4 billion and $6.9 billion, catastrophe modeling firm AIR Worldwide reported. Officials are still in the early stages of assessing damage caused by the wildfire that began on May 1 and quickly spread from forests to neighborhoods, outpacing local firefighters’ capacity to contain it. According to AIR, the Fort McMurray wildfire is the costliest natural disaster in Canada’s history.

The fire had initially moved away from Fort McMurray, but shifted back toward the city this week, causing evacuations for the second time. About 500 to 600 people were evacuated from four small work camps, Alberta Premier Rachel Notley said in a news conference on Monday.

The fire is still uncontained and, as of May 14, had covered nearly 600,000 acres, mainly in wildlands and away from population centers. Winds are now calmer and temperatures have lowered, with considerable cloud cover and a possible shower expected—all of which are expected to help firefighting efforts.

The fire’s new threat reversed earlier efforts to return local oil sands projects to full operation, the New York Times reported. The highway through Fort McMurray was reopened several days ago to allow workers to return to the work sites, but was closed again on Monday.

Premier Notley said that five things need to be in place before residents may reenter Fort McMurray:

  • Wildfire is no longer an imminent threat to the community
  • Critical infrastructure is repaired to provide basic services
  • Essential services, such as fire, EMS, police and health care are restored to a basic level
  • Hazardous areas are secure—100 truckloads of fencing are being sent to Fort McMurray
  • Local government is re-established

Firefighting crews are still trying to put out fires in the northern part of the city. Fort McMurray’s airport, water treatment plant, municipal building, hospital and all functioning schools were safeguarded, according to AIR. The airport continues to be used only for wildfire aircraft operations, however, and is closed to commercial and private aircraft until further notice. Current information suggests that a total of more than 2,400 structures have been lost—roughly 10% of the total number.

AIR said its loss estimates capture residential, commercial and automobile losses, as well as business interruption losses, except those related to the oil industry. AIR derived its loss estimates based on high-resolution Industry Exposure Database (IED) for Canada and damage ratios estimated from satellite imagery and experience from claims adjustments for historical U.S. wildfires. IED exposure values included in loss estimates have been trended to Jan. 1, 2016.

The wildfires in Canada illustrate a continuing trend of increasingly severe wildfires that caused a record 10.1 million acres to be burned in the United States in 2015, surpassing the previous high of 9.8 million acres in 2006, Mark Crawford reported in last month’s issue of Risk Management. It was the fourth year in the past decade in which more than nine million acres burned. According to the U.S. Forest Service, the 2015 wildfire season was the costliest on record, with more than $2 billion spent fighting fires.

October 2015 the Warmest Ever Recorded

It isn’t just your imagination: October 2015 was the warmest on record worldwide, and saw the greatest above-average deviation for any month. According to the National Oceanic and Atmospheric Administration, the average temperature across global land and ocean surfaces was 1.76 °F above the 20th century average, surpassing the previous record set last year by 0.36 °F. The globally-averaged land surface temperature was 2.39°F above the 20th century average—the highest for October in 136 years of NOAA records.

NOAA land and ocean temp percentiles

October was also the warmest month ever compared to average, out of a total of 1,630 months. What’s more, NOAA reports, eight of the first 10 months of the year have been record warm for their respective months—also a record number of broken records. Globally-averaged land surface and sea surface temperatures have been 1.55 °F and 2.30 °F above average, respectively, surpassing all previous records. With many months setting record high temperatures by unprecedented margins, NOAA said in August that there was a 97% chance that 2015 would secure the title of the warmest year on record, and it remains solidly on track.

In early November, the Met Office, Britain’s national weather service, and NASA both reported that the Earth’s average temperature is likely to rise 1 °C above pre-industrial levels for the first time by the end of 2015. This milestone is significant since it marks the halfway point to two degrees Celsius, the internationally accepted limit for avoiding the worst consequences of climate change, the Washington Post reported. Since 2000, global monthly heat records have been broken 32 times, yet the last time a monthly cold record was set was in 1916, according to CBS News.

Some of the heat is likely due to a strong El Nino event in the Eastern Pacific that continues to gather strength. This year’s El Nino is already one of the three strongest ever seen, CNN reports, but cannot account for all of the year’s warmth, as 13 of the 15 warmest years on record have occurred since 2000. Rather, it is the combination of long-term warming and the strong El Nino pushing Earth toward its second consecutive warmest year on record.

According to Aon Benfield’s October 2015 Catastrophe Report, there were three billion-dollar weather-related disasters in October: flooding in South Carolina with economic losses of at least $2 billion, $4.2 billion in damage from Typhoon Mujigae in China, and $1 billion in damage from flash flooding in France. The firm estimates worldwide economic losses from October to total more than $10 billion. There have been 21 billion-dollar weather events through October 2015, Aon reported, on pace for a lower total than the annual average of 28.

Check out the infographic below for more of the major climate anomalies and events from October 2015:

NOAA october climate anomalies