Water: Shaping China’s Food & Energy Choices

By Debra Tan 10 October, 2012

Debra Tan walks us through key issues & new trends

Limited water resources means renewables, gas and possibly fracking are here to stay
Biotech, new materials & trade could be the way forward to alleviate water stress in agri and textiles sectors
The 12FYP Strategic Emerging Industries are the real Magnificent Seven put in place to protect water

The Fortune Global Forum Sustainable Development Roundtable on “Energy, Food & Water” I participated in recently in Beijing coincided with the issuance of HSBC’s two reports “No Water, No Power: Is there enough water to fuel China’s power expansion” & “Water Stress: Analysing the global challenges”.The timing was fortuitous and entirely unplanned.

I am not going to go into the reports in this piece – you can read the summary of them here. The roundtable in Beijing was to tease out issues for the Fortune Global Forum in Chengdu next year. Here are key issues raised in the interactive tri-panel Fortune Forum on how water could shape China’s energy choices …

1. Renewables: a must-have non-water-reliant power…

Not accounting for water that is used in the raw material extraction and manufacture of coal/gas/nuclear fired plants, solar panels and wind turbines, renewables is the only type of power that does not require large amounts of water to generate on daily basis.

China has plans for an aggressive build out of its renewables capacity in the 12 FYP and beyond.

For Peggy Liu, Chairperson of JUCCCE (Joint US-China Collaboration for Clean Energy) and internationally recognized expert on China’s energy landscape, the path to renewables is a no-brainer.

Moreover, limited water resources leave China with little choice but to have one of the most aggressive renewables expansion plans in the world. She gave China an A for its efforts/ incentive programs/ financial support to build out the sector.

2. Gas v. coal: let’s use the more water efficient fuel …

Given that almost 50% of coal lies in water scarce regions and China expects to add +453GW of coal-fired capacity by 2020, equivalent to twice Russia’s 2009 power generation capacity, water may also shape the choices between building a gas-fired plant and coal-fired plant. This is because gas-fired power is more water efficient than coal-fired power. According to Xizhou Zhou, the head of IHS CERA’s China Energy Practice, a gas-fired kilowatt hour requires five times less water than a coal-fired equivalent. This begs the question: why do gas-fired plants not feature more heavily than coal-fired plants in the 12FYP and in the National Energy Association’s estimates for 2030? Surely the plan is wrong?

It’s a supply issue. Whilst China currently has a steady supply of coal, gas supply and transportation of gas to the point of need remain bottlenecks. What about China’s large unconventional gas reserves? David Zeng believes that large-scale tapping of this resource is still a distance away. He should know as he heads up Halliburton’s drilling fluids business line in China and spends most of his time in Sichuan where some of the fields are located. Although promising, China’s reserves sit in a very different geological makeup than the US, which may make extraction more difficult. In the end, it’s down to timing. Zeng reminded us that it took the US 30 years to develop its shale gas resources, whereas China has just started. Whilst it is not going to take another 30 years, it will take time for supporting infrastructure to be built. He remains cautiously optimistic. In the meantime, I guess China will continue to rely on coal – so the government didn’t really get “the plan” wrong after all.

3. Fracking uses water: so we are back to square one?

I am not going to go into the how water is used in fracking or the related environmental issues – you can read that here. But apparently, it is not all doom and gloom on this front. Peggy Liu shared with us new ways of fracking that do not use water, rather nanotechnology are being developed. Indeed, Goh Chee Kiong, Singapore’s Economic Development Board’s head of cleantech shared with us back in July that water solutions for the fracking market was of particular interest to them and that a company called Memsys with roots in both Singapore and Germany has just entered into an agreement with GE Water to develop water treatment for the unconventional resources industry (which includes fracking) using membrane distillation (MD) technology. So maybe there is hope yet and we too can be cautiously optimistic.

4. Biofuels: triple whammy energy-food-water no-no … or is it?

This is when Ellen Kullman, Chair of the Board and CEO of DuPont had a slightly heated debate with Roland Decorvet, Chairman and CEO of Nestle Greater China Region. We all know Nestle has a well-established anti-biofuel stance: “no food for fuel”. Kullman wasn’t arguing against that. She was championing next-gen biofuel with cellulosic materials such as switch grass and corn husks; where waste material is used and therefore no additional water required nor arable land taken away from the production of food. A similarly heated debate also took place back in Hong Kong at “2oC Plus Food” between the Director General of the International Food Policy Research Institute and Anthony Dixon, CEO of ASB Biodiesel – you can read that here.

That said, cellulosic fuels currently account for an insignificant amount of production at the moment. However, companies like Tereos, a global player in sugar, bioenergy and starch expect its production of cellulosic ethanol in the US to grow substantially by 2015 with the advent of technology; technology that DuPont is developing and testing in the US. If it works, a copy-and-paste approach for China could be a winner because that would solve water, energy, food and waste issues in one go. Since China’s first-gen biofuel program never really took off, maybe it’s time for China to leapfrog ahead to kill four birds with one stone.

5. Biotech/new materials: our only hope…

Of course with any discussion on limited water and food, GM, hybrids and biotech are raised. Kullman of DuPont stresses that science is the way forward – not just in better seeds, but also enzymes for prolonging shelf life. Naturally, biotech and new materials extend beyond food into reverse osmosis membranes and also new textile materials. Interestingly, DuPont was also presenting at a sustainable textile conference hosted by Textile Exchange. The conference was a grand meeting of over 300 delegates representing global brands, retailers and suppliers; possibly all the world’s organic cotton growers were also present. DuPont headed the “innovation piece”; not only with new materials designed and made with less energy and water but also enzymes that offer sustainability benefits for cotton textile production. All good stuff because we do all need clothes and although the mountains are high and the emperor is far away, the emperor can’t be naked (you can read about my view on clothes here).

6. Water/soil pollution & food safety issues: imports are inevitable…

On food safety, Wu Heng, a recent graduate who founded the excellent food safety website “Throw it out of the Window” held his own on the food panel against the two heavyweight CEOs. I have written about this before when I argued that cadmium rice, cardboard dumplings and fake eggs could benefit foreign producers and MNCs here. And I am going to use three charts from HSBC’s Water Stress Report (not used for this purpose) to make my case further…

China has similar per capita water resources to the UK and yet withdraws more water than the UK. But China’s GDP per capita is currently nowhere near that of the UK. Why is that? By 2030, how can the UK manage to raise its GDP per capita to US$35,000 and still maintain its per capita water withdrawals below 500m3, whilst China is looking at a much higher per capita water use of over 600m3 but only manages to push its GDP per capita to US$8,000?

The answer is trade. UK’s external water footprint is much higher than China’s where food/agri imports are low. On the contrary, China exports much of her water through made-in-China goods, which we all own. Importing water through food has to be the way forward (read about beef vs. iPads here).

7. The New Strategic Emerging Industries: China’s true “Magnificent Seven”

In the western classic “Magnificent Seven”, a Hollywood remake based on the “Seven Samurai”, seven gunmen are hired to protect a small agricultural village in Mexico. I would argue that the seven new strategic emerging industries of the 12FYP are like the seven gunmen put in place to protect water. Too far-fetched? Stay with me … Just to refresh, here they are compared to the ones in the 11FYP…

Too tree-hugging? Now look at them through a “water-lens” and it all makes sense. Of course we have to save energy: there is the carbon issue, but saving power is saving water. Environmental protection is obvious so I won’t go into that. Biotech, new materials, new energy and clean-energy vehicles we have just covered. Next generation IT, means smart metering of water and power, and high-end manufacturing surely is code for water-efficiency and less-pollution. The new SEIs are meant to be science fiction-like, to innovate; they are set to “protect” our most precious resource.

The US currently uses roughly 21 bathtubs of water per person per day. We only have (depending on rain) 24-27 bathtubs of water resources per person per day in China for everything. For China, there is no choice but to do things differently.

Further Reading

Debra Tan
Author: Debra Tan
Debra heads the CWR team and has steered the CWR brand from idea to a leader in the water risk conversation globally. Reports she has written for and with financial institutions analyzing the impact of water risks on the Power, Mining, Agricultural and Textiles industries have been considered groundbreaking and instrumental in understanding not just China’s but future global water challenges. One of these led the fashion industry to nominate CWR as a finalist for the Global Leadership Awards in Sustainable Apparel; another is helping to build consensus toward water risk valuation. Debra is a prolific speaker on water risk delivering keynotes, participating in panel discussions at water prize seminars, numerous investor & industry conferences as well as G2G and academic forums. Before venturing into “water”, she worked in finance, spending over a decade as a chartered accountant and investment banker specializing in M&A and strategic advisory. Debra left banking to pursue her interest in photography and also ran and organized philanthropic and luxury holidays for a small but global private members travel network She has lived and worked in Beijing, HK, KL, London, New York and Singapore and spends her spare time exploring glaciers in Asia.
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