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BACK TO BASICS: G20 WATER-NOMICS, TRADE-OFFS & TRADE

By DEBRA TAN
Director, China Water Risk

In an increasingly interconnected and resource-constrained world, it is important to remember that decisions made can have unintended consequences, to not forget the basics. It is Ramadan as I am writing this and Britain has just voted to Brexit. These events have made me ponder two things on the water front: where we have come from and where we are heading.

G20-WATER-NOMICS---graph

Once a year, during the month of Ramadan, all Muslims fast from sunrise to sunset. A good friend recently reminded me that Ramadan originates from the Arabic root ramida or ar-ramad, which means scorching heat or dryness. In a world where for many, water is available on demand from a tap, fasting through a hot day reminds us of the value of water.

Scorching heat, droughts and floods are becoming the norm and it is now well recognised that water is the resource most vulnerable to climate change. Aside from causing a less predictable water cycle, melting glaciers and rising sea levels, climate change also can exacerbate underlying water stress and scarcity. Policy, business and even consumer decisions today regarding climate change therefore also impact the future of water.

Agreements achieved at COP21 are encouraging but then along comes a decision like Brexit, bringing with it the harsh reality of how difficult it will be for countries to work together. Water sustains us and helps our food grow. We use it to mine ore and generate electricity. It is required in the manufacture of urban essentials from electronics, packaged food & beverages to fashion. It is the invisible hand that sustains the global economy.

An essential ingredient for development

Water is necessary for development but, water resources are not evenly distributed across countries. As nations develop, demand for water rises. Aside from improving water efficiencies, economic mix can be used to manage water use. Shifting from an agricultural economy to an industrial-led one helps alleviate water stress as agriculture typically absorbs around 70% of a nation’s water use.

We see many developing countries making this transition into industrial and then service-led economies.

China is no different. However, as we highlighted in our recently published joint brief with the Foreign Economic Cooperation Office of China’s Ministry of Environmental Protection, “Waternomics of the Yangtze River Economic Belt: Strategies & recommendations for green development along the river”, this is easier said than done. The agriculture sector in China alone employs 228 million people plus it is imperative for China to maintain food security. With an increasingly complex water-energyfood- climate nexus exacerbated by water pollution, China has embarked on a path to rebalance economic development and environmental protection.

Tough trade-offs

Development via industrialisation also brings with it pollution. In China, the shift of heavy industry upstream to promote economic development inland has narrowed the income gap between coastal and inland areas but this has also meant that China’s waterways are not just transporting goods between provinces but also pollution. There is thus an urgent need to look toward sustainable economic development.

Nowhere is this more important in China than the Yangtze River Economic Belt (YREB), which drives 42% of China’s GDP and is home to 584 million people. The Yangtze River also provides the parched North with water via the South to North Water Diversion Project. With around 65% of the nation’s rice production and over 70% of China’s hydropower production, the YREB is vital to ensuring the nation’s water, food and energy security.

Better understanding of these linkages between water and development, or water-nomics is thus important, both at a regional and national level. For countries with limited per capita water resources, careful selection of crop mix as well as industrial mix can help manage water use and pollution at the same time. Sometimes, polluters are not obvious: for example, the textile apparel and footwear industry in China discharges twice as much wastewater as China’s entire coal industry. This makes the trade-off s less obvious. In another instance, our clean energy and smart future could be on the back of toxic and at times, radioactive discharge from rare earth mining in China which supplies the world with a disproportionately large amount of rare earth minerals. At China Water Risk, we believe a comprehensive understanding of water risk is required and only then can proper management of water through realistic and holistic solutions be found.

Not enough water? … Trade!

Trade, too, plays an important role as a water-nomic management tool. The chart above shows that to develop, the G20 countries are either using their own water or someone else’s through water embedded in imported goods. Three clusters of countries are apparent:

1. The US, Canada and Australia, as large energy and agri-base economies, largely use their own water resources;

2. Japan, France, Germany and the UK have a high GDP per capita with a high external water footprint; and

3. Less developed economies with lower per capita GDP primarily rely on their own water resources.

As the developing G20 countries urbanise and develop, competition for water will increase. Countries with limited water resources may have to follow the path of the Japan-France-Germany- UK cluster and use trade to “balance their water accounts”. From a water perspective, trade choices are simple: stop exporting water intensive goods and start importing water intensive goods; stop exporting polluting goods.

What then happens to those who rely on these goods? Policy decisions made in favour of domestic water security have clear global impact, putting investors as well as businesses at risk of being blindsided.

Greater-good decisions

In an increasingly natural resource constrained world, a “me-first” attitude is a natural go-to. Britain’s perceived “me-first” vote for Brexit doesn’t bode well. Imagine if China were to do the same: “me-first” on its water resources, rare earths minerals, cotton, textiles, electronics and so on? Quite to the contrary, we all enjoy cheap goods from China at the expense of that country’s environment. Also, let’s not forget that a few of Asia’s mighty trans boundary rivers start their journey in China. So perhaps instead of branding China as a “resource predator”, it should also be recognized as a “magnanimous resource sharer”?

“Greater-good” decisions require G20 nations to make tough decisions; to stick together and tough it out.

We can start with power generation and climate change. Developing countries also now have fewer choices thanks to the carbon limitations. “Cheap coal” is no longer available – for the good of the planet. Even cleaner coal is frowned upon. But since power generation is generally the second-largest user of water in developing countries, it is imperative to get the power mix and cooling technologies right for both climate and water. Our global energy choices today, matter for all our water resources tomorrow.

Global decisions at this water-energyclimate nexus matter enormously for Asia. Upper watersheds like the Himalayan Hindu Kush region, as the source of 10 major rivers feeding 16 countries in Asia need to be prioritised along with sea level rise. In an increasingly globalised world, with disparate needs and diff erent voices where “me-first” fears lurk, we need to steer the conversation back to the basics. We need to remember what we all have in common; what we absolutely cannot live without – water. We need to work together to prioritise and protect this precious resource.

We need to rethink our business-asusual consumption-led development model. Built-in obsolescence must go. China has started ambitious plans on this front, from Made in China 2025 to its transition to a circular economy, but it cannot achieve results alone. We need to do this collectively; there is no exiting this planet, at least not yet.

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