The risk of fresh water shortages increases in the US and the Eighth District

In it 1746 edition of Poor Richard’s Almanac, Benjamin Franklin quipped, “When the well is dry, we know the value of water.” Two hundred and seventy-five years later, the US that Franklin helped found now faces that proverbial dry well, as regions of the country experience climate change-induced temperature extremes and changes in precipitation patterns.

A Record heat wave in early summer 2021 it has already scorched the western and southwestern US, exacerbating a deep, long-term drought. The drought is also affecting the High Plains and the upper Midwest. Meanwhile, the demand for fresh water has increased due to population growth and increased use by the agricultural and industrial sectors that depend on constant access to abundant supplies.

The increasing risk of freshwater scarcity in the US and the world is revealing the need for more optimal mechanisms for water allocation. Fresh surface water from rivers, lakes and reservoirs, as well as fresh groundwater from aquifers, have long been considered unlimited and have been greatly undervalued as a result. This undervaluation has led to misallocation and overuse.

For example, the combination of decreased precipitation and increased demand has caused US aquifer levels to decline faster than can be replenished naturally. The misallocation of water has also led to inadequate investments in America’s water infrastructure, which is crumbling. Leaks alone cause the loss of 2.1 trillion gallons of water each year (PDF)according to the US Water Alliance. Misallocation has also hampered the development of new water technologies and has led to an increasing number of water rights lawsuits before the United States Supreme Court.

water futures

A recent harbinger of the need to better determine the value of water was the launch of the first water futures contract by CME Group and the Nasdaq Stock Exchange on December 7, 2020. The contract represents the first publicly traded and regulated risk management tool for water. It allows participants in the agricultural, commercial, municipal water, and insurance industries to hedge their future price risk by buying or selling water contracts based on the Nasdaq Veles California Water Index (NQH20).

He the index and the corresponding futures contract have risen since late March, when it first became apparent that winter snow and rain were not falling in sufficient quantity to recharge mountain snowpacks and replenish freshwater supplies normally found in rivers, reservoirs, lakes and streams in the western US.

While California market participants can use the futures contract to hedge their specific risks, an increasing number of financial institutions, real estate investors and others are adding water scarcity risk to their portfolio assessments. For example, the BlackRock Investment Institute found that about 60% of the global real estate investment trust (REIT) properties it was able to examine it will experience high water stress by 2030. That’s more than double the current number.

Freshwater Basics

In 2015, the US used a average of 281 billion gallons of fresh water per day (Bgal/day), from surface and groundwater, based on 2015 US Geological Survey (USGS) estimated water use in the United States.

Fresh surface water withdrawals averaged 198 Bgal/d in 2015, 14% less than 2010. Fresh groundwater withdrawals were 82.3 Bgal/d, 8% more than 2010.

Agricultural irrigation made up 37% of total freshwater withdrawals, while thermoelectric use accounted for 41%. Domestic and private use comprised 14%; commercial and industrial use, 6%; and livestock and aquaculture use, 3%.

Stressed

The World Resource Institute’s Water Risk Atlas for Aqueducts uses hydrological models and more than 50 years of data to estimate typical water supply versus demand. The water stress scale shows regions that are close to depleting their annual water reserves in a typical year. As shown below, water stress reaches many regions of the US, including parts of the Eighth Federal Reserve District states.

Arkansas, which is in the Eighth District, is the fourth largest user of fresh water overall and the second largest user of groundwater after California. Arkansas uses groundwater for most of its agricultural needs, including the controlled flooding of its rice crops. Arkansas is the nation’s leading rice-producing state, accounting for 40% of the US crop. He also irrigates his cotton crops; in 2020, Arkansas was the third largest cotton-producing state.

Crop production is concentrated in the eastern half of Arkansas, which is where the state’s aquifers are under the most pressure, according to the Arkansas Department of Agriculture’s Division of Natural Resources. In its latest Arkansas Groundwater Protection and Management report, the division notes that groundwater withdrawals are occurring at an unsustainable rate. The report focuses on two critical but stressed aquifers that support eastern Arkansas, as well as parts of Missouri, Tennessee, and Mississippi: the Mississippi River Valley Alluvial Aquifer and the Sparta-Memphis sand aquifer (also known as the Middle Claiborne Aquifer).

Battles break out over the allocation of scarce resources

The Sparta-Memphis sand aquifer is also the focus of a potentially precedent-setting case before the US Supreme Court. In its case against Tennessee, Mississippi claims the city of Memphis has been pumping water from the aquifer so extensively that a depression has formed in the water table under the city wells.

The Memphis area is one of the largest metropolitan areas in the world. relies exclusively on groundwater for municipal use. Mississippi is seeking $615 million in compensation from Tennessee. While the Supreme Court has heard interstate surface water cases in the past, this is its first interstate groundwater case. In November 2020, a special judge of the US Supreme Court concluded that aquifer water cannot be limited within state borders and must be shared. The high court is expected to rule on the judge’s recommendation in mid-2021 and your decision can influence groundwater management for decades.

He number of interstate legal battles related to water use it is expected to grow as water scarcity problems increase. In April 2021, a 20-year battle was settled when the Supreme Court ruled that Florida failed to prove that Georgia’s use of the Chattahoochee River caused Florida’s oyster fisheries to collapse.

Conclution

The availability of and access to fresh water is at risk as demand begins to threaten supply in many regions of the country and the world. Temperatures are rising, reservoirs are receding, and aquifers are shrinking. Infrastructure is crumbling while crops are withering in the western and north-central US. Interstate battles for fresh water are escalating and the financial sector, along with central banks and other regulators, are is paying more attention to water, either as part of the deliberations. on climate change and environmental, social and governance issues, or as a significant risk in its own right.

meanwhile there is a increasing focus on conservation Y water recycling methodsincluded some efforts to recharge aquifers. Scientists and ag-tech startups are grow crops that are less dependent on waterand farmers are using methods to help the soil retain more moisture and nutrients. Desalination companies are developing better technologies for generating fresh water sources from salt waterwhile others are generate fresh water from the air.

On the water infrastructure front, in late April 2021, the US Senate passed a bipartisan bill authorizing more than $35 billion to improve states’ water infrastructure. If approved by the House and signed into law, the Drinking Water and Wastewater Infrastructure Act will provide the Environmental Protection Agency with funds for grant programs and revolving loan funds to help improve aging infrastructure, invest in new technology and support disadvantaged communities.

While the American Society of Civil Engineers and the Value for Water Campaign estimate that it will take more than $3 trillion to fully fund US water infrastructure needs. for the next 20 years, the bill is a first step forward. From conservation to innovative technology to repairing leaky pipes, all are increasingly essential to ensure a strong water supply for generations to come.