Liquidity Crisis – Does Asia Have Enough Water To Develop?

Via China Water Risk, a detailed look at Asia’s water crisis:

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Asia faces serious and urgent water challenges ahead. Already today, two of its most populous countries, India and China, are water stressed and rampant water pollution from decades of rapid development has only further exacerbated water scarcity. Meanwhile, across the continent, water infrastructure, albeit improving, is still lacking leaving hundreds of millions with no access to clean water.

While it is important to ensure adequate access to water, we believe it is time to move the conversation on water in Asia beyond access to clean water to one on water-nomics – managing water in tandem with economic development. We must do this to ensure long term social, economic and water security in Asia. The fact that climate change is evident in the Hindu Kush Himalayas (HKH), also known as the Third Pole, the source region of many of Asia’s arterial rivers only lends urgency to start this conversation. The report thus focuses on 10 HKH Rivers, namely the Amu Darya, Brahmaputra, Ganges, Indus, Irrawaddy, Mekong, Salween, Tarim, Yangtze and Yellow, that flow through 16 countries (the HKH 16). These 10 HKH Rivers emanate from Afghanistan, Bangladesh, Bhutan, China, India, Myanmar, Nepal and Pakistan (the HKH 8) and flow through Cambodia, Kyrgyzstan, Laos, Tajikistan, Thailand, Turkmenistan, Uzbekistan and Vietnam (Downstream 8).

The water-nomic performance of the HKH 16 countries was compared to that of the G20, with more attention paid towards the HKH 8 countries as upper riparians. Analysis of the water-nomic performance as well as climate change impact on river flows of each of the 10 HKH River Basins were also carried out. The results are sobering:

• Not enough water to develop: Our analyses finds that of the HKH 8, China, India and Pakistan simply do not have sufficient water to ensure food and energy security plus develop under the current export-led economic growth model. To achieve a per capita GDP of over USD50,000, the US uses at least 1,543m3 of water/pax which is only 16% of its total renewable water resources of 9,538 m3/pax. Unfortunately, China and India are only endowed with total renewable water resources of 2,018m3/pax and 1,458m3/pax respectively; Pakistan has even less. This leaves their governments no choice but to chart a roadmap to more GDP on less water and less pollution. This includes transitioning from agrito services-led economies, controlling total water use, revamping polluting and water-intensive industries, optimising crop mix and improving efficiencies. Experiences from developed G20 countries show that trade can also be used. Europe uses less water than the US as it is largely reliant on water-intensive imports, essentially using other people’s water, whereas the US is largely food and energy secure. Regulating for water scarcity will clearly bring transitional and disruptive risks.

• Material river basin exposure – people & economy: The10 HKH Rivers only account for a third of the HKH 16’s surface water resources but one in two people from the 16 countries live along these rivers. Moreover, USD4.3trn, or a third of the HKH 16’s GDP is generated in the 10 basins. Such clustering of people and the economy has put pressure on the water resources of the basins. Indeed, more than half of the respective basin areas for five out of the 10 HKH Rivers are already either facing “high” to “extremely high” water stress or are arid. Given significant exposure, it beggars belief that business and investment communities have yet to start assessing the exposure of their assets to basin water risk, let alone climate risks.

• Climate change impacts river flow: The 10 HKH Rivers are vulnerable to climate change; their flow components from glacier melt, snowfall to rainfall are changing, even monsoon patterns will shift. Glacier and snow melt can form a significant component of runoff mix eg. 62-79% for the Upper Indus and 25% for the Upper Yellow but despite a material water source, there is no comprehensive glacier database for Asia. We estimate total ice reserves supplying the HKH River Basins to be 7,574km3. This largest accumulation of ice outside the two poles is often called Asia’s Water Tower. When melted, it will provide almost 7trn m3 of freshwater, enough to fill two Great Lakes (Michigan and Erie) plus almost 40 Three Gorges Dams. Already, China has lost glaciated areas greater than the land area of Thailand between 1970s and 2000s. Thus, we must invest in finding our baseline; a first step would be to plug the gaps in data, monitoring and multi-disciplinary research.

• Rising clustered risks due to urbanisation: Rising urbanisation adds further pressure on basin water resources as people flock to the 280+ major cities (including capitals) located in the 10 HKH River Basins. Such “clustering” also increases exposure to climate change in the form of 1) changes in river flows as well as 2) extreme weather events such as floods and droughts. Already 1.77bn people live in the 10 HKH River Basins; 1.7bn are in the HKH 8. By 2050, six of the HKH 8 countries will have an urbanisation rate above 50%. Short of moving billions of people, we must start building resilience to adapt. Rising systemic exposure at the basin-level also means that banks will eventualy have to rethink credit policy to factor in environmental risks from a basin perspective. 11

• Future climate trends for basins not encouraging: Aside from glaciers, historical (1955-2005) and future (2006- 2055) trends in temperature, snowfall, rainfall and runoff under RCP 4.5 were made by our report partner, the Chinese Academy of Sciences, using five climate models. Results were not encouraging. Temperatures will continue to rise with increases doubling in six of the 10 basins while snowfall will continue to decline with future losses likely more than doubling for the Indus, Tarim and Ganges. River runoffs will experience mixed impact with four rivers seeing shrinkages in flow. These projections assume we stay within +2°C.

• Four “Priority Rivers” require urgent attention: Although every river is important to each of the HKH 16, our basin analyses reveal four “priority rivers”: the Ganges, Indus, Yangtze and Yellow. Not only do they house the largest economies with an estimated total GDP of USD3.8trn, they are densely populated with 1.5bn people. All four “priority rivers” are vulnerable to climate change with glacier and snow melt contributing to over 20% to 80% of runoff in the upper reaches of these rivers. More worryingly, projections show that the entire Ganges and Indus river basins will likely see reduced runoff flows by 2055. Given clear risks ahead, India and China must act.

What’s at stake – shocking perspectives: For perspective, the annual flow of the Ganges will not even fill up Lake Erie, the smallest of the Great Lakes, but yet an estimated population of 614mn (almost twice that of the US) lives there, generating a third of India’s GDP. The annual flow of the Indus will not even fill half a Lake Erie, but it houses 88% of Pakistan’s population and generates 92% of the country’s GDP. Meanwhile, annual flows from the Yellow are less than that of the Indus. Although the flow from the Yangtze can fill more than two Lake Eries, China has started looking at holistic water-nomic management and green development along the Yangtze. It is clear that challenges ahead are monumental and daunting. The fact that eight out of 10 HKH Rivers are transboundary lends further complexity. The current arrangements of people, resources and economies shaped by previous physical conditions will thus likely change; we have to adapt. This will require trillions of dollars of financing but despite what’s at stake, adaptation plans and financing lag. Currently, the majority of climate finance raised goes towards mitigation, not adaptation. Closing this finance gap is the minimum, as clustered exposure along rivers together with limited national water resources means that Asia does not have the luxury to continue with business as usual. India and China, as upper riparians, must look beyond national interests to protect their common waters and lead the way in both transboundary and regional economic cooperation. They must create a new paradigm of ‘business unusual’ and circular economies to ensure the continent’s water security. Multiple actions will have to be taken, some of which are fundamental: A change in mind-set, governance, the way we do business and how we spend. We have identified eight broad action areas in this report. At the core is de-emphasizing economic growth and prioritising the environment. China has started: entrenching “eco-civilisation” into its constitution and de-prioritising GDP targets under the vision of a Beautiful China, Made in China 2025, plus redefining trade via the Belt & Road Initiative are key to this paradigm shift. India has also recognised its liquidity constraints. Earlier this year, NITI Aayog, a government think tank, released a report titled “Composite Water Management Index” to better manage its water resources.

These are positive steps but the road ahead is long. Asia is still hungry for thirsty power and energy choices matter as coal-fired power generation can be water-intensive and accelerate climate change, which in turn exacerbates scarcity. Tough trade-offs lie ahead as 375 million people in the HKH 8 still have no access to power. Smart energy choices must be made today, to protect water tomorrow. With abundant hydropower resources, dams are thus likely here to stay and stronger hydro/transboundary governance will be required. As the largest employer, water user and generally the largest polluter, the agricultural sector will need to be rehauled and there will be trade-offs such as food security. Trade will also be impacted as countries with limited water move away from exporting water-intensive goods. There is no doubt that these policy shifts when implemented will reshape the development landscape for Asia and disrupt multiple industries in Asia and beyond. Transitional and regulatory risks plus climate change will impact businesses, investment portfolios and loan books exposed to these 10 HKH River Basins. Business and investment communities also must start to create a new paradigm of ‘business unusual’ so that they can continue to flourish.

The future of Asia is at stake. We have to start linking these complex issues. We must understand our real liquidity constraints so that we make better policy, investment and business decisions today for a water and economic secure tomorrow. Avoiding a real liquidity crunch, one that could impact billions of lives and cost trillions of dollars is one of Asia’s greatest challenges in the 21st century. We all have a part to play. Asian leaders, businesses, financiers, entrepreneurs and scientists have the opportunity to pave the way toward a future with water. 

This entry was posted on Wednesday, September 19th, 2018 at 5:21 am and is filed under News.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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