By Andrew Nusca
Posting in Energy
Pushing for a price on water is impractical to achieve conservation, according to Artemis Project founder Laura Shenkar. Here's why.
Laura Shenkar, is the founder of The Artemis Project, a San Francisco, Calif.-based firm that advises companies on corporate water strategy and the use of water technologies in commercial and industrial markets.
We spoke to her about the venture capital buzz around water tech, the practical problem with a price on water and the leverage points that are needed to make the sector attractive to investors and the general population.
SmartPlanet: You're based in Silicon Valley. Tell us a bit about the VC scene as it pertains to water.
LS: I see water from the perspective of an IT-intensive investment that would become a real engine of commerce. We all know that there's a limited amount of water on Earth. As there are more people and business, there's less to go around.
I focus on the crack in the beginning of the industry. Those early streams of success. The Internet 20 years ago was not one concept, but little developments that came together. The difference with water is that the Internet is a nice thing to have, but we all know we'll continue to need water.
Are people's minds changing? I would say by and large no. They don't really need to worry in developed countries about getting water to drink. But there are certain areas where you have the opportunity to use water more mindfully.
Venture capitalists earn very large returns when they accurately predict something that no other investors are seeing. One, this is a very obvious proposition -- you're never going to stop needing water. Two, there is very little investment today.
There is no question about the general opportunity, but the detail is the real challenge. There is a history of investments that have not gone well and another of great companies with great ideas that have not succeeded.
The infrastructure is breaking down, but it's not an emergency yet. It hasn't hit the radar.
SmartPlanet: We've asked water experts about why it matters. What does not? What's just noise?
LS: Fifty percent of investment today worldwide in equipment and chemicals is in municipal infrastructure. This is the slowest moving, least innovative market for a lot of industries.
Compare that to cleantech -- you know how painful it was to have energy [utility] companies take renewable energy seriously. Water is 30 years behind the energy utility. The last thing you want to be innovative about is water. You want the same technology to give you clean water. Right?
[A large percentage of investment is in] industrial applications. Most are conservative and wait 10 years after municpialities to adopt technologies.
10 percent is [in] agriculture. On average, agriculture uses about 70 percent of the water in the world.
I'm talking to you from California. Eighty-five to ninety percent of the water in this state is used in agriculture. Why would you conserve water in the urban environment when the farmers are flooding the fields?
I moved from Israel seven years ago. Everything in Israel has irrigation -- 80 percent of the country. Not because it saves water; it's because you're lazy. It just works.
California is indicative of the world as a whole. Water here is an asset to farmers. They're so pressed in their economic model that environmental concern is not [impactful] to them.
If there's something more incendiary than raising water prices, it's raising food prices. They're desperately trying to lower the cost of their input to make that food.
You can force them to do it, but you need to think of their economic model.
SmartPlanet: A price on water seems harder than it sounds. So how do you get there?
LS: The trigger that has worked best in California is the relationship of water and energy. Water is a mass -- it must be stored. There is a true energy cost anytime you try to move water. And an infrastructure cost. I can make as much desalinated water as you want, but there's a cost.
That discussion actually makes policy move faster than talking about water for what it's worth.
The other question is, where [in the world] do you hit scarcity issues? When you hit those, water rights go out the door.
You need enough water for each person to drink and bathe for each person in an area. That's mission critical. After that, you need water to cool a nuclear reactor. You don't really want to turn them down. Then you start to see a baseline water need that is significant -- and that's no fun, no agriculture, business, nothing. Then you start to look at business needs. Ecosystem needs -- lakes and rivers need a certain amount of water for them to survive. You need to limit pollution.
Getting water policy to move anywhere in the world requires a true water shock.
In terms of policy, it's such political football. What comes from a good intentioned effort is small and distorted.
One thing that's working is the idea of green jobs. It's a hot button issue for politicans everywhere. How do you generate a real economic base for a specific area? This is where venture capitalists come in. Water becomes an interesting event.
If you look at places that might consider sponsoring technology, it's usually because they have a dire water need to they have the academic and business base for it. Ontario. Israel. Australia. China -- a dire problem, in particular with disposal of waste.
If you're not an enormous corporation that can't do a lot of shooting and not hitting a target, and you're a small company who needs to shoot golden bullets, you want to [find] customers who are willing to move fast.
The water industry is the benchmark for the most conservative industry on Earth.
It's truly not a worldwide problem yet.
SP: California is hard up for water, but other states such as Pennsylvania are not. How do you capture a population's interest when scarcity isn't an issue?
LS: Pennsylvania has plenty of water. And it's occasionally addicted to energy. New York and Pennsylvania are sitting on an enormous reserve of natural gas, the Marcellus Shale.
You're looking for real urgency and drive. You need a very sophisticated, wealthy, fast-moving customer -- the opposite of a utility. One who sees water technology as a critical issue.
The water management on-site [in hydrofracking areas] has issues with accountability and oversight. They're under regulatory scrutiny. This is the first perfect storm I've seen for water technology.
SP: Because fracking uses a lot of water and is under the political microscope, regulatory scrutiny will force companies to use less of it.
LS: Right. You need to assume that the most essential thing for life is plentiful and virtually free if you're going to move the needle on water. It's not an easy thing for investors or policymakers to swallow.
You could make a world of difference if agriculture handled things better. But I just don't know how.
SP: Let's talk global for a second. A developed market like the U.S. or a developing one like Africa: which makes more business sense?
LS: The question is timing. Look at the cell phone -- they sell them incredibly in Asia and Africa. But that was only when it was developed and matured and proven in the developed world.
You can't afford to do it any other way. Developing countries just don't make sense for startups.
If you take a capitalist view of water -- "I want to do good in the world, but my job is to be a VC" -- you're creating a mechanism that can be profound in solving problems where policy has not succeeded. Water is Job No. 1 for municipalities, but it's so essential that the problem is distorted.
Look at Google. It's really changed the world in a lot of good ways. But they never set out to do that. You look at water, and you know you have to do more.
Jun 10, 2011
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"an IT-intensive investment that would become a real engine of commerce. " "streams of success" Wow, she's a walking buzz-word factory! "Why would you conserve water in the urban environment when the farmers are flooding the fields?" Because people have to eat. Food. Food requires water.
The whole argument of government subsidizing water is flawed. Just stop the subsidies and make farmers and everyone else pay a market price for water. Problem solved. Water is scarce in South Africa yet people seem to have little regard for its scarcity. I think the problem is that the correct pricing mechanisms are not instituted and all these subsidies cloud the picture. I thought human society is enlightened enough to make sense of these things. What hope is there that we'll be able to solve the more pressing challenges confronting society if such a thing as water pricing and use is befuddling our politicians?
Rather than a system where the taxpayer pays farmers not to use water or the farmer gets the incentive for a service provided at taxpayer expense, the capitalists says to charge them by usage of the water. Just for the point of discussion, if the first 1 million gallons of water cost a farmer $2,000 (keep it cheap to support farming) and the next 50,000 gallons cost them $1 million, they would reduce their usage below 1 million gallons in a heart beat. Why do so many of you have a problem with making people pay for something it costs the government to provide? Why dump everything into general taxes? Why not pay by usage? I'm not saying the government should make a profit. They just need to break even on the cost to provide water. A side effect is to use the rates as incentives for people to conserve. I'm not sure where the rest of you live, but I have been paying by the gallon for piped in municipal water for over 40 years. They also bill me for municipal sewerage based on water consumption. This discussion is old news. What is the big deal about paying for water? Only cry babys want everything for free.
Water use in California is split between agriculture, fish, recreational, residential and industrial use. Agriculture gets most of the water, the farmers are given allotments that they have to use or lose what they did not use. Agriculture need for water varies from year to year depending on rain as well as the water supply. One solution to the excess agricultural water is to allow the farmers to sell the excess water they don't need. The allotments should remain stable so that the farmers can use just the amount needed for the season.
...is that there's a growing sector in business (and its attendant parasites...er...lobbyists) that is trying to manufacture a 'problem' from which they can profit by selling their 'solution.' In most of the developed world where a sane public - and by extension a sane public policy - prevails there is no shortage of water. Just as California steals their water and power from surrounding states and expects those states to restrict the use of their own resources to slake the thirst of insatiable, unsustainable and insane growth in California, they are trying to foist these water and energy policies on the rest of the country. There is no energy shortage, for instance, in the rest of the country but to have more power in the grid that they can siphon off, the Cali. cartels want us to ban the reliable and cheap light bulb, for a no more reliable, less functional and more-expensive-by-magnitudes fluorescent bulb reminiscent of Escher's work at its most bizarre. The key to the whole issue and the driving force behind the abhorrent concept that governments - whether local, state, or federal - should charge for any use of water, regardless of the source, is that there is no money to be made from free water.
-"I see water from the perspective of an IT-intensive investment that would become a real engine of commerce." -"Water here is an asset to farmers. They???re so pressed in their economic model that environmental concern is not [impactful] to them. If there???s something more incendiary than raising water prices, it???s raising food prices. They???re desperately trying to lower the cost of their input to make that food....You can force them to do it, but you need to think of their economic model.You could make a world of difference if agriculture handled things better. But I just don???t know how." -"Look at Google. It???s really changed the world in a lot of good ways. But they never set out to do that. You look at water, and you know you have to do more." Laura, I suggest you are using the wrong model for looking at water. The big difference between water and, say, the internet, is that it is an essential part of every piece of the planet's ecology. If a widget in the human economy becomes too pricey, it drives competition to develop a cheaper alternative so folks will buy their widget instead of the more expensive one, and this is the process that drives the human economy. But with the planet's water, you cannot come up with an alternative, i.e. you can't substitute going to the movies for it. And, rather than seeing the environmental piece as a small wedge in your pie of customers, you need to put it as the source of your capital. Generally speaking, a healthy environment is going to translate to more water that has been filtered of more impurities. Look at the investment New York made in buying up lots of forests in the outlying river watersheds and you'll see what I mean. If you start from the premise of ecologically based economics, you'll develop an economic model that will actually be sustainable instead of one that, like mining, is based on boom and bust.
...is that there is no realistic price to the end consumer on water. It is highly subsidized to all users, especially agriculture. When I started studying this problem 25 years ago, we had farmers growing rice in a desert environment! And since the water was almost free to the farmers, why shouldn't they? That we see little private activity in the market for water at a state level or globally is of little mystery: There is no way that any private entity can compete with a state subsidy that practically gives away the end product with little regard to actual cost of collecting and transporting it. (Could you even imagine how we'd consume oil if it was provided in this way) Whenever something is susbsidized, at best there will be overuse of it, and at worst, there will be contempt in the use of it. It we want farmers, corporations, and individual consumers to respect water, the only way to do so is to make them pay a higher price for it. I seriously question any supposed "capitalist" who can't seem to understand that.
Massachusetts also has plenty of water, but filtering it is costly only to have people water their lawns with it. It is a proven fact in urban and suburban communities that if you scale municipal water prices up as usage goes up, peoples usage will go down. The trend mentioned here is already happening in New England as many communities are getting out of the municipal water business by outsourcing the filtration, pipe maintenance, etc.
Why should the farmers be allowed to sell water they never paid for while the government foots the bill for pumping the water to them? Something is wrong with that picture. Oh I see. People are making money on the backs of the taxpayer.
If they didn't charge at least enough to break even, how would they pay for complying with those on high at the EPA who have handed down all of the regulations?
Whether the farmer is paid for the unused water, trades for the water or given a gold star for his book is beside the point. The point is to give an incentive to not use all the water allowed; otherwise you are trying to count on the goodness of people to not hord or waste water. It is the same problem with government budgets, if you don't use all the money budgeted this year then you risk getting your budget reduced next year. Get rid of the use it or lose it and change it to use only what is needed.
If you 'll note, I said 'regardless of the source.' These lobbyists and their handlers want us to pay for ALL water...even if its from our backyard wells. Last time I checked, the EPA had not yet stuck their collective noses in MY well!