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Water: The New Blue Economy?

As companies plan for the future, water keeps pushing itself onto their agendas like an incessant tide. Water resources clearly are rising in significance in many site location decisions, and industry participants expect ‘water pressure’ to keep climbing.

Dale D. Buss, Staff Editor, Area Development (Directory 2015)
American Cast Iron Pipe has started manufacturing water pipeline at the site of the old Buick City complex in Flint, Michigan, and the ironies are flowing.

The pipe will comprise a new waterway aimed at helping the Flint area escape its crumbling industrial past and whoosh into a water-based economy of the future. The American Pipeline factory is on the spot where General Motors built cars for nearly a century, until the slow collapse of GM forced the plant’s closure in 2010, after a huge renovation in the ‘80s proved to be a last gasp.

The Flint area was all too happy to welcome a company that will help it tap water from Lake Huron, to the east, allowing the region to disconnect from its traditional supplier, the City of Detroit. It will use its control of ample water supplies to lure other manufacturers and other companies from water-parched areas of the country.

The ironies lie in where American Cast Iron Pipe is based: Alabama. That state faces potentially major concerns about its own freshwater supplies, which could one day crimp its surging economy. In the meantime, Alabama has vastly outstripped Michigan in the growth of auto manufacturing jobs.

“Is water the new blue economy?” asked Jeff Wright, drain commissioner for Genesee County, which includes Flint, and a primary driver behind the $600 million project to build a 67-mile pipeline from one of the largest of the Great Lakes. “Michigan sits in the middle of one of the largest freshwater basins in the world. The South and Southwest are experiencing droughts and water shortages,” he adds.
In Michigan, state officials have launched a “Blue Economy” initiative to prioritize water technology as a high-growth sector for the state. Moving water around the world in various ways represents a $50 billion market over the next 20 years, the state says
Adjusting to a Resource Reality
Such are the shifts gradually taking place as companies and economic development officials adjust to a resource reality that has become as unstoppable as a mighty river. Disparities between states with abundant, available, and relatively inexpensive freshwater resources, and those that are becoming parched or water-stressed, increasingly are coming into play as companies make location decisions. And the contrasts are beginning to change the roster of “have” and “have-not” areas of the country.

“It’s becoming more important not only to industrial companies that use significant water supplies in their operations, where it would be a key item anyway, but also for other operations such as offices and distribution centers and R&D facilities where water isn’t crucial to their operations,” says Larry Gigerich, managing director of Ginovus, an Indianapolis-based site consulting firm. “In fact, companies’ biggest concern from a natural resource point of view these days isn’t energy, because they’re feeling more comfortable about supplies. The concern now is water, which will really have an impact in the future.” Gil Pezza, director of water technology at the Michigan Economic Development Corporation, agreed. “Within the next five or six years, the importance of water as a location factor is going to increase exponentially,” he says.

Rising Significance as a Location Factor
To be sure, water availability didn’t place in the top-10 most important factors in selecting a site in Area Development’s most recent annual Corporate Survey. And players in the site selection community aren’t seeing a wave of companies making location decisions on the basis of future water availability, in part because they’re not seeing water-based crises affecting corporate operations yet.

“They look at what’s happening in California, but so far we haven’t had any company that’s a monster water user experiencing major problems getting water there,” notes Scott Kupperman, founder of Kupperman Location Solutions, in Lake Forest, Illinois.

But water resources clearly are rising in significance in many site location decisions, and industry participants expect “water pressure” to keep climbing for several reasons:
  • Company executives, in general, are more concerned about future water resources, and their rising attention to the issue has been trickling down into decisions about where they decide to build and expand facilities.
  • Extreme problems with drought in California, and persistent problems with water scarcity in other parts of the country, are making indelible impressions on people who make site location decisions.
  • Water-rich states and regions are becoming more aggressive about promoting the economic development advantages of their ample resource and about contrasting them with water have-nots.
  • Companies are paying more attention to sustainability concerns that may be expressed by suppliers, customers, employees, and consumers, and their approach to water usage can comprise a significant part of their positioning on such issues.
Water Stress/Scarcity
In fact, more than 80 percent of large consumer-goods companies said that water availability and quality pose a fundamental concern for their business, and 22 percent predicted water problems would inhibit business growth. The biggest risk they saw, at 47 percent, was water stress or scarcity for reasons ranging from the population boom to prospects of climate change to mismanagement of water supplies.

“Leading companies increasingly recognize that business-as-usual approaches to water management are no longer sufficient,” says Paul Simpson, CEO of the Carbon Disclosure Project (CDP), which surveyed Coca-Cola, Nestle, Unilever, and other global giants.

Companies’ biggest concern from a natural resource point of view these days isn’t energy, because they’re feeling more comfortable about supplies. The concern now is water, which will really have an impact in the future. Certainly water matters are playing a big role for LiDestri Food & Beverage, a maker of sauces, dips, salsas, and spirits and the nation’s largest tomato processor. The Rochester, New York-based company has six plants across the United States, including three facilities in its hometown on the shores of Lake Ontario, and one in Fresno, California. LiDestri recently consolidated its East Coast operations in Rochester, in large part because of access to 1.1 million relatively inexpensive gallons of water required to run their facilities each day.

By contrast, the Fresno plant in increasingly drought-plagued California isn’t slated for expansion. “We’d never shut the Fresno plant down because of the water situation, but it’s much more expensive to do business there — water is at least four times more expensive” than in Rochester, says David Stoklosa, a LiDestri vice president.

Rethinking the Dynamics
Mark Peterson, CEO of Greater Rochester Enterprise, the economic-development engine for the area, is seeing more companies “rethink all the dynamics of what they’re doing” because of water-supply issues; plus “the growing populations of the South and West have really strained corporations’ ability to get large quantities of water at a cost-effective level,” he explains.

There’s also the recent deal between Tucson and Phoenix to share the dwindling aqueous bounty of the Colorado River. And there are memories of countless disconcerting episodes of water uncertainty and drought — and struggles between units of local and regional and state governments over water resources — from the last several years in places stretching from Lake Mead, Nevada, to Florida.

“Even after the current drought ends, the West will continue to suffer water shortages thanks to population growth, economic development, and the effects of climate change,” wrote Robert Glennon, a law professor at the University of Arizona and an expert on America’s water crisis. “When engineers designed the water infrastructure in arid states in the West, they assumed that future droughts and floods would follow historical patterns. But precipitation patterns have changed.”

Cost-Competitive Options
Whether they might change back is a question for the future. But for now, one thing is for sure as economic development officials in many parts of the country examine their prospects: When it comes to water resources, they’re on their own. At some point that could mean that ocean-water desalination finally becomes cost-competitive. The Midwest won’t be bailing them out. The six-year-old agreement between the United States and Canada called the Great Lakes-St. Lawrence River Basin Water Resources Compact ensures that the lakes’ waters won’t be shipped wholesale from the region even if the temptation to do so presents itself to one state or province or another. That’s already what happened in the late 1990s when Ontario moved toward sending bulk containers of Lake Superior water to Asia. And, in any event, unlike oil and gas, which of course can be economically transported across the country, funneling water from the Midwest to the Southwest and West by any means of transport would be a financial non-starter in just about any feasible scenario.

“People are always telling me they’re worried that someone will want to put a pipeline from the Great Lakes out there,” says Alan Steinman, a fresh-water expert at Grand Valley State University in Grand Rapids, Michigan. “But it would be cheaper for someone to transport an iceberg to Phoenix and use that.”

States With a Water Resource Advantage
Indeed, for the Midwest, greater water pressures in the future set up nicely as a regional economic advantage. Florida has sunshine; Texas and, now, North Dakota have oil. The South has inexpensive labor. The coasts have tech and finance and marketing locked down. So if all of these regions have been happily enforcing the law of comparative economic advantage, why shouldn’t now the areas that are blessed with lots of fresh water be doing the same thing?

Wisconsin has surged ahead of regional rivals in this area with a public-private incubator in Milwaukee called the Global Water Center, which is attracting water-based startups such as Vegetal i.D., a France-based company that has created an innovative system to control runoff from “green roofs” that cultivate vegetation.

“Traditionally, economic development is about attracting businesses to you, but we’re talking about growing our [water-related] businesses in Milwaukee by finding new projects around the world to come and work with our water resources,” says Dean Amhaus, president and chief executive officer of The Water Council, which is focused on making the area a “world water hub.”

Water-Based Initiatives
Not to be outdone for long, Michigan and Indiana also have launched water-based economic development initiatives. A study by the Indiana Chamber of Commerce found the state to be already the most water-dependent state in the country as it pertains to its impact on the economy, through steel plants on Lake Michigan and many other facilities.

“Indiana should be taking advantage of its current water supplies to help attract and retain businesses — and jobs,” says Kevin Brinegar, president and CEO of the chamber. “If we plan properly for the future, these resources will continue to be an economic advantage.”

Water-rich states and regions are becoming more aggressive about promoting the economic development advantages of their ample resource and about contrasting them with water have-nots. Larry Gigerich, Managing Director, Ginovus Meanwhile, in Michigan, state officials have launched a “Blue Economy” initiative to prioritize water technology as a high-growth sector for the state. Moving water around the world in various ways represents a $50 billion market over the next 20 years, the state says, so “we see businesses grown in Michigan around water and water technology as a profound piece of our overall economic development strategy,” notes Jon Allan, director of Michigan’s Office of the Great Lakes.

“But we’re not taking out an ad in the Los Angeles Times and saying, ‘We have all this water; come use it however you want,’” Allen adds. “Our love is a little conditional. We and the [Michigan] public have certain expectations for how we provide stewardship for the Great Lakes.”

Sustainability Ethos
Most companies are prioritizing water husbandry for another reason: rising demands from shareholders, suppliers, employees, and customers to apply a stronger “sustainability” ethos to how they manage all the natural resources they use and also their environmental impacts. In this regard, explains Gigerich of Ginovus, more companies want to know about the water-resource-management plans of potential locations and the sources of water as well as their costs.

Given all of this, are bold water-based gambits such as the new Lake Huron-to-Genesee County pipeline in Michigan destined to become white elephants, or opportunistic gold mines?

The Flint pipeline “will be barely economically viable in the short term,” says Robert Czachorski, co-founder of H2Ometrics, a Livonia, Michigan-based water-systems consultant. “But if you look forward 30 or 40 years, it could prove to be a stroke of genius.”
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