Desalination Profit Through Environmental Mitigation: A Case Study of Similar Industries

Over the past several years it has become quite clear that ‘industry’ has been shifting towards the conveyance of an image of being ‘green’ and a greater sense of corporate social responsibility. Despite this, the vast majority of corporate decisions that are made are analyzed simply through the lens of short-term cost or profitability. Coupled with the fact that green premiums are fairly nebulous (http://www.hbs.edu/faculty/conferences/2014-launching-the-star-lab/Documents/HainmuellerHiscox_AEJ.pdf), this provides one with more questions than answers as to how to convince businesses that the long-term financial viability of their firms is directly in line with the environmental outcomes caused by their operations. In my research on the desalination industry, more often than not I encounter references to the impacts that these plants are having on local marine ecosystems and environments. In order to better understand how to calculate the financial benefits of minimizing these impacts, then, it is useful to analyze the history of two industries: waste and paper.

Throughout the history of the United States environmental regulations have, in general, trended in only direction: greater stringency. The waste industry, epitomizing such trends, didn’t even become a true industry until the late 19th century. In 1873, a cholera epidemic caused by direct waste disposal killed over 3,000 people in the Mississippi valley (http://www.deq.state.ok.us/lpdnew/wastehistory/wastehistory.htm). In 1934, the Supreme Court of the United States forbid the untreated dumping of municipal waste into water bodies. And, over the next 80 years, various laws limiting waste disposal in terms of quality and location have driven the industry into greater self-regulation, increased environmental costs but eventually, recognition as a necessary and helpful public good for society.

Similarly, the paper mill industry has traditionally been recognized as the one of the greatest polluters in developed countries (http://mercatus.org/sites/default/files/Regulations-Pulp-Paper-Industry.pdf). With a number of impacts on the environment, environmental regulators have attempted since the early 1970s to mitigate issues as wide ranging as deforestation, air pollution, water pollution, waste, chlorine discharge, and sulfur emissions. In order to deal with such concerns, congressional measures such as the Clean Water Act, Clean Air Act, and Endangered Species Act provided the framework through which the first regulations were placed on the industry. Since then, other more specified mandates have been added such as the Clean Air Act’s Maximum Allowable Controllable Technology (MACT) and recently the Great Lakes Restoration Initiative. With each additional regulation placed upon the industry, the costs to the industry have gone up and the fines have increased (http://www.lesspollution.org/ip_history.html)

As these regulations has been implemented, the waste and paper mill industries have incurred millions of dollars in costs and fines as they moved towards a more sustainable means of business. Today, in the desalination industry, regulations in place to monitor the carbon emissions, intake valves, and brine discharges are adopted from other industries and fail to take into account the unique nature of desalination operations. In no way does this mean that desalination is a technology that shouldn’t be utilized in providing a drought-proof water resource. Instead, desalination plant developers and owners should look towards being a first-mover with regards to adopting ‘green’ or more sustainable technologies. As the government shifts towards greater adoption of this technology, and as the environmental impacts become more well-known, there will undoubtedly be a shift towards implementation of stricter regulations and methodologies. By adopting sustainable technologies today, the desalination market can take control of their own destiny, conveying the best practices that should be adopted going forward, and saving themselves significant amounts of capital along the way.

Desalination is a technology that is ripe for further expansion as droughts worsen and water supplies dwindle. It is important for companies to understand the environmental impacts of the products they provide and utilize this knowledge in order to improve their product offering and ensure future profits.

Consolidation and Innovation in the US Water Sector

“According to the US Environmental Protection Agency (EPA), there are nearly 53,000 water suppliers in the United States. That’s in contrast to the US electric industry…which only has 3,300 electric providers.” This quote, taken from the latest edition of the online magazine WaterWorld (http://www.waterworld.com/index/current-issues.html) provides insight into recent market shifts in which the privatization and consolidation of smaller water utilities has become increasingly common. Throughout the United States and the world, small utilities’ failure to ensure future financial viability amidst a notoriously small margin industry has led many to seek corporate owners with the balance sheets and resource scalability that will allow them to maintain operational excellence.

In addition to this lack of scale, another explanation given for the historical disaggregation of the water industry is the concept of a natural monopoly. The water industry has traditionally been viewed with this theory in mind, as the capital expenditures necessary to build new treatment plants and distribution pipelines are such that the extant water provider has an insurmountable cost advantage over any new player. In doing so, traditional providers that have signed 25 to 30-year water purchasing agreements are undeterred by any and all competitive advantage that a firm may have in the water district next door. The lack of competition and small margins, then, have traditionally given rise to an industry culture in which the status quo and corresponding lack of innovative investment remain the norm.

Seth Siegel’s book Let There Be Water seeks to understand, among other things, the reason for a lack of innovation in the water industry. In his book, Mr. Siegel espouses a view of the world in which Israel has become the preeminent innovator within the water sector (for reasons as wide-ranging as mandatory military service as well as a certain desperation stemming from being surrounded by enemies). As Mr. Siegel, and presumably the Israeli interviewees he spoke with claim, Israel has enjoyed a recent explosion of innovation in the water sector because they have a unique willingness to act together and try new things. One example of this, a short case study on Mekorot (http://www.mekorot.co.il/eng), discusses how Israeli water operators oftentimes serve as incubators for Israeli-developed water efficiency startups, installing and testing new technologies while serving as pilot plants for startups. This concept is remarkable – providing both startup founders and municipal water operators with the opportunity to test the efficacy of potentially life-saving technologies. In fact, water companies receive financial bonuses from the government for testing these new technologies. As amazing as that sounds, it seems likely that such a proposal would be impossible, if not illegal, in the United States.

Which brings us back to the exploration of the importance of consolidation versus disaggregation in the US water industry. If water companies in the Middle East can implement technologies and efficiencies at cost, does it mean that the United States has a duty to do so as well? In the end, the United States has reached a point in which cash-strapped municipalities have already begun auctioning off water systems. As small margins are multiplied, these new owners/operators will have the ability to improve the efficiencies of these utilities while maximizing their own profit margins. But with this new revenue, water owners must be pressured into updating and investing into new technologies that can protect the future water supplies of constituents. Only then, when a competitive landscape forces utilities to seek opportunities to ‘out-perform’ their competitors and local governments and constituencies mandate that their operators continue to innovate will we reach a stage where we can be proud of the way in which our water industry operates.

Measuring the Value of Ground Water in Kansas: An Analysis of Next Steps

Yesterday I was directed to an article written by Yale’s Eli Fenichel entitled “Measuring the value of groundwater and other forms of natural capital”. This paper, published in the Proceedings of the Natural Academy of Sciences, attempts to establish a framework through which to view the true value of groundwater (http://www.pnas.org/content/early/2016/02/04/1513779113.full.pdf). As the authors write, current literature on the subject uses traditional capital asset theory in order to price groundwater but does so only by estimating the cost of related ecosystem services – which do not take into account the value of “other important social, economic, and biophysical data” – which the authors claim to have done in this new paper.


This paper was particularly interesting to me due to the fact that the authors used the Kansas High Plains aquifer as their case study. Being from Kansas, I was interested to see not only how the authors valued the water utilized widely for agriculture in the region but also how they understood such a valuation could be used for future policy decisions. In the end, after a first read-through, it is clear that Professor Fenichel et al believe that they have developed a means of analyzing the proper devaluation of relative wealth in the region due to overpumping but have not effectively created a methodology through which to view this situation and react effectively. Specifically, the authors of the paper value groundwater in the Kansas High Plains region at between $7 and $17/acre foot of excess water. In turn, this values the groundwater beneath the average acre-plot of Kansas agricultural land between $173-$396/acre. While this may seem like a lot of money, cursory research on landwatch.com shows that the average $/acre for Western Kansas farmland is valued between $2,000-$5,500/acre, although this also likely assumes a limitless supply of water. Then, the authors calculate that the wealth of the groundwater aquifer, assuming that this water is a capital asset, has suffered a $110 million hit every year for the years from 1995-2006 due to many reasons, most notably a new type of drip nozzle. Interestingly, the authors also point out that this decrease in groundwater wealth also happened to coincide with the budgetary surplus enjoyed by the Kansas State Government during those years. 


But what does this all mean? Does a 6.5% annual decrease in groundwater wealth mean that Kansas will no longer have any accessible groundwater in 15 years? Unlikely, as this estimate was made in 2005 and thus would mean that Kansas’s groundwater resources will be depleted in the next 5 years at that past rate. Does it mean that Kansas should charge its farmers on a $/acre foot basis between $7-$17? Maybe, but that seems unlikely due to the necessity to maintain low food prices. Does it mean that Kansas should invest its budget surpluses in developing a more sustainable means of using water that accounts both for irrigation efficiency AND overall water usage? Probably, but the paper doesn’t delve into that discussion in great detail.


In the end, the authors provide a new and unique perspective of viewing the water underneath our feet. In today’s political climate, it is unlikely that Kansas farmers or Kansas politicians will utilize this information to change the price of water, regardless of its value. Thus, interested individuals should review this paper in order to better understand that the water resources that we have always taken for granted are diminishing, and we are reaching a point in which there is no turning back. The most interesting sentence of the article, to me, was the one in which the authors stated that “pricing of natural capital has remained elusive, with the result that its value is often ignored, and expenditures on conservation are treated as costs rather than investments”. We are reaching a point in which we can no longer view this groundwater conservation as a cost, because the total value of this capital is diminishing quickly. Until we understand that, and develop a way to incorporate the pricing mechanisms provided by the author, there doesn’t seem to be a future for sustainable agriculture in the Kansas High Plains.

 

The Politics of Water: Israel, Palestine, and Water Security - A Reflection on Seth Siegel

Yesterday I had the opportunity to eat dinner with and then listen to a speech made by Seth Siegel. Seth, as you readers may or may not know, is a serial entrepreneur (founder of Beanstalk) as well as the author of the world renowned New York Times Best Seller Let There Be Water: Israel’s Solution for a Water Starved World. 


In this book, Mr. Siegel analyzes the history and technical efficacy of the Israeli people in response to intrinsic regional water scarcity. As Mr. Siegel sees it, Israel is a semi-arid/desert nation, surrounded by enemies, that has effectively multiplied its population while developing an agricultural and technological nation completely dependent on reliable water sources. On a high level the reasons for this success, which are many and hard to delineate, are oftentimes seen as nebulous ideas such as technical prowess, a conservation ethos, and sheer will. Importantly in my mind, then, Mr. Siegel attempts to remove some of the historical sheen off of the Israeli water experiment. Rather than permitting these concepts revolving around ‘necessity is the motherhood of invention’ to permeate, Mr. Siegel attempts to delve into the respective people and eras that drove water quality and water supply innovation in the new country. One particular character of note is Simcha Blass – the man responsible for developing the first integrated water plan for the Jewish people in Palestine – who has been lost to history but largely developed the foundation for the success of Israel today.


Mr. Siegel has spent the last four years researching this topic as well as the last year speaking nearly 100 times to audiences all around the country. In the talk yesterday, as could be expected, the first question that Mr. Siegel received was with regards to the water security differences amongst Israelis and Palestinians. The question was raised as to the fact that Israelis have access to nearly 300L per day of water supply while the average Palestinian only has access to 70L, 30% below the UN guidelines for water security. The importance and the tragedy of this situation for the Palestinian people is undeniable. And, there is undoubtedly more in my mind that Israel could do to supply water and create a stronger relationship between the two parties. But this very question, the question about whether Israel is to blame for the plight that Palestinians currently find themselves in, seems to distract from the very topic that Mr. Siegel is attempting to discuss in his book.


The world is currently on a path towards one of the greatest humanitarian disasters that we have ever seen. By 2025 nearly 60% of the world will not have access to a sufficient and safe water supply for daily living purposes. Today, we watch every day as Syrians flee a country stricken with drought and depleted agricultural output while similar events happened in Egypt just a few years ago. Israel, on the other hand, is if not the most, then the second most, innovative water country in the world (Singapore). The Israelis are a desert nation that has achieved 100% water security, and even exports some of its water to places such as Jordan and Palestine. The question should not be whether or not you believe in Israel’s politics, which some of you of course do not. Instead, the question should be, for those countries that may not believe in the right of Israel to exist or believe that Israel is a serial aggressor, how can they adopt the domestic water policies similar to those of Israel in order to strengthen their own people’s health and water security? At some point we need to move beyond the question of whether Israel is good or bad and realize that, with regards to water policy, they have only done well for themselves. By ignoring the success that has occurred as related to drip irrigation, reverse osmosis, water reuse, etc. we are only setting up ourselves and the world for a dramatic failure.

 

The Role of Sustainability in Water Utilities

One of the topics that I have been researching over the past several years is with regards to the role of sustainability in water utilities. What does that mean? How can it be implemented? How important is it?


When one thinks of sustainability in the modern context, images of Patagonia or Unilever emerge with promises of decreased reliance on fossil fuels and leaving behind a better world for the next generation. With regards to water utilities, one imagines a world in which firms take on the behaviors of California over the last year – advertising and recommending that consumers use less water. But why and how is this possible? Water utilities are intrinsically reliant upon sales of water to consumers in order to maintain current revenues and cover all operations and maintenance costs. Is it realistic to expect a company that requires water revenues to survive and thrive to purposefully minimize such revenues?


This past week Yale University was supposed to hold a brainstorming session with the local water utility in attempting to develop ideas for new, non-water based revenue streams. In essence, the local water utility is aware of changing consumer behaviors surrounding water and thus understands that they need to develop alternative revenue streams in order to remain a viable corporation. Kudos to them.


But if sustainability is also understood to be a concept that requires the continued survival of the companies that practice it, how can recommending that consumers reduce water usage uniformly be a sustainable practice for a water utility? In short, it can’t. California utilities right now are being forced to act responsibly by local regulatory bodies but will in fact be out of business in mere years if they don’t receive subsidies/develop alternative revenue sources outside of water sales. 


This is the primary perspectives and questioned currently being raised in the water sector at the moment - how can water utilities balance the need for revenues now and future availability tomorrow? And while this debate is indeed important, I have yet to see a coherent discussion that mentions the true elephant in the room. Namely, in today’s US water utility climate, in which some pipelines were built in the 19th century and many utilities still have not installed smart meters, leakage rates in the United States range from 10%-30% of all water treated. Every day, water utilities around the country purify water to drinkable standards, begin pumping it to customers, and have no idea where it goes. How is this possible? In a world in which technology in widely available to predict and monitor when leaks occur (www.takadu.com), how is it possible that we still have leakage rates at these levels? The question of sustainability, with this in mind, becomes a much more readily fixable solution. Rather than focusing exclusively on the changing of consumer behaviors, why don’t we change the readily understandable behaviors of utilities first?

 

Flint, MI, Cochabamba, and the Rule of Law

As many of you may have seen over the past several weeks, Flint, Michigan is currently host to the scene of one of the greatest preventable environmental issues in modern America. Following the takeover of the Flint water utility system by the State government in 2014, the decision was made to switch water sources to a new river rather than continue to purchase water from Detroit. This decision was made for financial reasons. 

Almost immediately Flint residents began to complain about the smell, taste, and flavor of the new water. Individuals claimed that they began developing rashes, experienced weakened bone density, and even began losing hair - all explicit examples of lead poisoning. In response, government officials publicly claimed that the water was perfectly healthy and met all national and local water quality requirements. Behind the scenes, however, it quickly became clear that the water was anything but; it was routinely tested improperly and the new water source had corroded many of the old leaden pipes, leading to mass contamination of the drinking water supply and greater than 5x concentration of lead than dictated by the Clean Water Act. Not until a stay-at-home mom named Leanne Walter and a Professor named Marc Edwards began to do testing and proclaim results publicly did the government admit wrongdoing and begin providing bottled water to local populations.

There is no doubt that providing two years of lead-contaminated water is causing irreparable harm to many individuals and families. There is no doubt that Flint is going to be on the hook for tens if not hundreds of millions of dollars in lawsuits. But who is going to jail? Who is going to be individually penalized for poising over 100,000 people for multiple years? 

A friend asked me recently why I believe that businesses should be in charge of running local water utilities and the reason is Flint. There is an innate understanding that a business is not only more efficient, more sustainable, and more innovative than local governments, but there is also the understanding that if a business were to have run Flint, MI over the past two years, their entire leadership board would be headed to jail. Instead, we have an EPA administrator who has resigned and a Governor that is complaining to the Federal Government for not providing enough assistance in developing new water infrastructure. Is that really what we have come to expect from government? Where are the protests not just for the children that have been harmed but for the people who did the harming? Where is the Cochabamba response in the street against a government that did something far worse to its people than a private water utility ever has? In order to move our infrastructure forward we need government to start acting like it is always on the hook - until we do we won't see any improvement or change in moving our water infrastructure forward into the next century.

Advanced seawater desalination treatment plant cuts energy use

A new desalination system that can produce more than 60,000 liters of fresh water a day has recently been put into operation on Guishan, an island in the Zhuhai special economic zone, Guangdong Province.

According to a statement from the Guangzhou Institute of Advanced Technology, an affiliate of the Chinese Academy of Science, the desalination system is the first on the Chinese mainland to use waste heat from diesel generators to produce fresh water.

Read more