Valentina Pasquali

A pipeline deal with Turkey was taken as a step toward EU energy security, but Russia looms large.

ISTANBUL — Turkey this week celebrated the signing of a major deal on the Nabucco pipeline project as a step toward European Union membership and becoming a Eurasian energy hub.

Nabucco is expected to pump 31 billion cubic meters of natural gas from the Caspian Sea to Europe by 2014, bypassing Russia and thereby decreasing the dependence of the EU on Russian gas. Turkey is a Nabucco transit country, along with Hungary, Bulgaria, Romania and Austria.

Despite the agreement, Russia’s continued attempts to control the region’s energy resources, the lack of unified political action in the EU, and Turkey’s indecisiveness, threaten Nabucco, energy experts say.

Russia, which sits atop about 25 percent of the world’s natural gas reserves, dominates regional energy markets. To strengthen its near monopoly, Moscow buys almost all the gas produced by Turkmenistan and Kazakhstan. As a result, countries including Austria, Bulgaria and Hungary have no choice but to import most of their gas from Russia.

Turkey depends on Russia for 65 percent of its domestic gas use and is also desperate to diversify its sources: “There are gas cuts every winter,” said Necdet Pamir, a former high-level official with Turkey’s state-owned oil company and a board member of the World Energy Council.

While Moscow blames the interruptions on Ukraine, “the result is that, for whatever reason, technical or geopolitical, every winter we suffer,” Pamir added.

Russia’s remarkable reach complicates diversification efforts via Nabucco. Azerbaijan — the only supplier committed to feed gas into the pipeline — recently signed a Memorandum of Understanding with Gazprom to export its gas to Russia for at least a year.

“But Azerbaijan cannot provide both Gazprom and Nabucco with natural gas. It’s either one of them,” said Vugar Baymarov, chairman of the Center for Economic and Social Development, an Azeri think tank.

The Azerbaijan-Russia MOU comes at a difficult time for Baku’s ties to Ankara: “Our recent move to normalize relations with Armenia has complicated Azerbaijani attitudes toward Turkey and thereby Nabucco,” said Suat Kiniklioglu, spokesman of the Foreign Affairs Committee of the Turkish Parliament.

Since no other supplier has yet been signed up, the Nabucco pipeline faces a major supply hurdle.

Further, in phase two of the project Turkmenistan is scheduled to supply extra gas into Nabucco via a trans-Caspian pipeline. Considering that Turkmenistan’s economy is primarily dependent on Russia, it is unlikely that Ashgabat will sell its gas to any country but Russia, at least not without Moscow’s permission.

Meantime, the two remaining options — Iraq and Iran — are effectively off the table.

Northern Iraq is thought to have large gas reserves, but it will take years to develop them, and, said Sinan Ulgen, chairman of the Istanbul-based Center for Economic and Foreign Policy Studies, “Political instability during the past decade made it impossible to estimate how much capacity there is and how it can be channeled to Nabucco.”

While it has the world’s second largest reserves of natural gas after Russia, Iran is, according to Stanislav Tkachenko of St. Petersburg State University, a “politically impossible alternative,” because it would require “radically improved relationship between Iran and the United States.”

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U.S. sanctions have crippled Iran’s energy sector and Washington continues to oppose any use of Iranian gas for Nabucco, as U.S. energy envoy Richard Morningstar reiterated Sunday.

Turkey says it will press ahead despite U.S. objections. “Turkey is an independent country and can buy its gas wherever it wants so long as conditions are right. If there is gas in Iraq, Turkey will buy it. The same with Iran,” said Kiniklioglu, the Turkish Foreign Affairs Committee spokesman, pointing to the fact that Turkey already imports Iranian gas for its domestic market.

But Turkey might not have to go behind the U.S.: “There are signals that the U.S. is changing its Iran policy toward a more accommodating approach,” said Tkachenko, noting President Barack Obama’s reaction to the aftermath of Iran’s contested elections.

In any case, Turkey’s own energy issues might complicate things further. While insisting that Ankara can maneuver independently of Moscow, Kiniklioglu admitted that Turkey has to “get along well with a country that provides you with over 60 percent of natural gas.”

Moscow is taking advantage of its position to offer Ankara alternatives to Nabucco. The two parties are discussing the construction of Blue Stream 2, an extension of the Blue Stream 1 pipeline that brings gas from Russia to Turkey. Talks are also underway for the South Stream pipeline, a direct competitor to Nabucco that would transport Russian gas via the Black Sea to Bulgaria, Austria and Italy. By joining South Stream, Turkey could become an energy hub without endangering relations with Russia.

The fact that a central dispute between Turkey and the EU over Nabucco was pushed aside with Monday’s agreement but not solved casts doubts on Turkey’s commitment to the implementation of the deal. Ankara has been asking to divert 15 percent of gas flowing through Nabucco toward its domestic grid, but the EU opposed the request.

Since Ankara’s number one priority is Turkey’s energy security and independence, it will probably try to use Nabucco as a bargaining chip in negotiations with Russia, and its relations with Gazprom as a lever in talks with the EU.

“Turkey will remain on the agenda with Nabucco, South Stream or some other projects,” Turkey’s Energy Minister Taner Yıldız told the press Tuesday. The Turkish newspaper Hurriyet reported that Ankara and Moscow will negotiate energy projects during the visit of Russian Prime Minister Vladimir Putin to Turkey on Aug. 6.

According to Yurdakul Yigitguden, Turkey’s former undersecretary of energy, Russia shouldn’t be blamed for pursuing its own interests. “The problem is that there is a lack of leadership in support of gas companies. They can’t go at it alone,” Yigitguden added, calling for stronger political support for Nabucco across the EU and Turkey.

The agreement signed Monday might be a sign of political commitment towards Nabucco. At the same time, in the last several months the Nabucco Consortium began mentioning Russia as a potential supplier of gas for the pipeline, defying the sole reason for Nabucco’s existence.

Washington D.C. – From the poor in Haiti and Egypt to wealthier consumers in Europe and the United States, the world’s population has taken a hit this spring because of the rising prices of staple foods such as corn, wheat, rice and milk. A dangerous mix of indigenous troubles and mismanagement at the level of national governments, exposed by an unexpected slowdown in the global economy, are at the roots of a crisis that has spread quickly across the globe. USAID, the agency of the U.S. Government in charge of development, calculated that 37 countries worldwide have been experiencing a brutal combination of lack of food security, lack of access to food, and decreasing food supplies.

The food price index of the Food and Agriculture Organization of the United Nations (FAO) registered a spike of nearly 40% in 2007 and continued rising drastically during the first months of 2008. According to the International Food Policy Research Institute, a research center in Washington D.C., since 2000 the price of wheat has tripled, while those of corn and rice have almost doubled.

As a direct result, a growing number of people are becoming increasingly poor. Approximately 1 billion citizens worldwide earn less than $1 per day. 162 million among these subsist on less than $0.50 per day. “At the household level, increasing food prices have the greatest effect on poor and food-insecure populations, who spend 50 to 60 percent or more of their income on food,” says the USAID website. The World Bank recently published an estimate according to which the doubling of food prices during the past few years could potentially push 100 million people globally into extreme poverty.

The immediate consequence of this general impoverishment of the world’s population is instability. In April, riots spread across Haiti leaving at least six locals and one U.N. peacekeeper dead. In Africa, millions of Zimbabweans are currently threatened with starvation and the United Nations warns that up to 5 million people will need assistance in the coming months. Overall, the World Bank has identified 33 countries, many of which already politically unstable, that are particularly vulnerable to increased unrest as a longer-term ramification of this year’s food crisis. Egypt, where the emergency over the rising prices of wheat and bread turned particularly violent, is among them.

Don’t Make War, Make Bread

“It was a national crisis,” Khalil Al-Anani, a visiting scholar at the Brookings Institution in Washington DC, told Washington Prism in an interview. “Wheat in Egypt is a staple food, it’s a fundamental component of the daily nutrition of the Egyptian people,” Mr. Al-Anani, an expert on Political Islam from Egypt, continued. Egyptians even use the same word — aish — to refer to both bread and life.

While the prices of other commodities were rising this past spring, the already high demand for wheat in Egypt increased steeply, as people had to rely even more than normal on government-subsidized cheap bread. Between the lengthening lines outside of bakeries, the growing anxiety of those queued up for hours, and the protests against the government, 11 people have reportedly died since March in incidents related to the bread crisis. Egyptian President Mubarak even ordered the army and the interior ministry, in charge of the bakeries that make bread for the troops, to increase their production in order to “put an end to the bread crisis,” official newspaper Al-Ahram Daily reported.

“It basically turned into an issue of national security,” Mr. Al Anani told us. According to the Egyptian scholar, although the emergency only broke out this year, the economy of bread has been a problem in Egypt for the last three decades. The government has never been able to guarantee fair distribution of wheat and bread among the people and endemic corruption contributes to making bread an even scarcer good. “In Egypt, wheat is a government subsidized commodity,” Mr. Al Anani explained. Bakers are given wheat by the government at lower than what would be market prices and they are responsible for making bread and selling it to regular Egyptians. “However, because of the disparity between government subsidized prices and black market prices, and because of the lack of oversight on the activities of the bakers, these normally employ only a small portion of the wheat they receive from the government to make bread, while selling the bulk of it on the black market,” Mr. Al Anani told us.

Naturally, Mr. Al Anani pointed out, the global food crisis, a bad drought in Australia compounded by the increase of the price of wheat on the world markets, unleashed the state of emergency and exposed all the other systemic problems.

From Australia to Kansas City

The global upward trend in the price of wheat started in June 2006, when the Australian wheat crop was almost cut in half due to drought. “That was followed by a damaging late frost in the US and a second year of drought in Australia leaving wheat stocks at a 30-year low,” Mary Haffenberg explains. She is the Associate Director for Product Communication at the CME Group of the Chicago Board of Trade, “An even steeper spike took place at the beginning of 2008, when wheat hit $14 a bushel on the Kansas City Board of Trade (KCBOT),” Professor Kim Anderson, a crop marketing specialist at the University of Oklahoma, noted in his conversation with Prism. “It is a historically high price; the last spike of the same kind came in 1996, although at the time the price per bushel only reached about $7.50,” Professor Anderson pointed out.

“The hike in the price of hard, read winter wheat (the kind traded in Kansas City and used to make bread), was so significant that we had to change our daily price limit–the limit of upward and downward variations that we allow in one day,” Jeff Borchard, President and CEO of KCBOT, recalls in a phone interview. “It used to be 30 cents per bushel per day. But we were hitting our price limit so frequently that it was constraining trade and was preventing the exchange to serve its right-price finding role,” Mr. Borchard said. Now the limit has been raised to 60 cents per bushel per day.

The major cause of such increase in the price of wheat on American commodities exchanges was the failure of the harvest of 2007. In particular, Australia, one of the most important exporters of wheat in the world, has been plagued by a severe drought since 2006. An October 2007 media release by the Australian Bureau of Agricultural and Resource Economics (ABARE) warned: “The continued deterioration in seasonal conditions over the critical September–October period means that the 2007-08 national winter crop forecasts have had to be revised down.” ABARE, located in Canberra, is a government economic agency dedicated to independent research and analysis.

The Australian drought, alerting wheat-producing countries world-wide, triggered a series of cascade effects. “China, India, Russia and Argentina, among others, started implementing export bans, set quota limitations and increased tariffs to decrease their export to the advantage of domestic consumption,” Mr. Borchard explained. This, combined with the weaker dollar, left the United States as the only major exporter left, and traders flocked to the US exchanges in Chicago, Kansas City and Minneapolis.

In the meantime, studies on world grain usage forecasted increased demand globally. “A USDA projection from January 11th pointed to heavily growing demand and showed, at the beginning of this year, the lowest world grain stock-to-usage ratio since the 1960s, set at around 16%” Mr. Borchard noted. The stock to usage ratio indicates the amount of current demand that can be met by stock accumulated the previous year.

Additionally, there have been claims that a growing demand for corn as a feed-grain used to produce biofuels, triggered by the increased price of oil, impacted negatively the price of wheat. Farmers, encouraged by the higher returns from corn, reportedly switched some of their cropland from wheat to corn. Oklahoma State Professor Kim Anderson doesn’t fully agree with this view; “What has been reported by some news media on the relations between demand for corn and the price of wheat is inaccurate.” According to him, wheat and corn do not compete for the same cropland. “Wheat is considered a food-grain while corn is traded as a feed-grain,” Professor Anderson explained.

“The corn market has likely not affected the wheat market to any great degree,” Ms. Haffenberg from the CBOT echoes. “In the Midwest where most of the corn and soybeans are grown, wheat is simply part of the routine crop rotation.  In many locations in the South and southern Midwest, wheat can be double-cropped with soybeans and the wheat cycle is typically the winter, before soybeans.  Hardly any Midwestern farmers consider themselves wheat farmers.  In the Great Plains, where significant quantities of wheat are grown, wheat does not compete with corn or soybeans because these locations are too dry to support corn and soybeans.  These farmers will claim to be wheat farmers.”

KCBOT’s Jeff Borchard has a slightly different take; “There was some stress on wheat and a shift to corn of some acreage because of the increasing demand for corn,” he told us on the phone. “It was certainly not the biggest factor, maybe even one of the lesser factors, but it was nonetheless a factor as a few acreage of wheat were lost to corn.”

In any case, experts agree that the rising price of oil has had a major impact on the price of food in a different way. “The price of wheat itself makes up only about 10% of the price of bread once it is sold to costumers,” Professor Anderson noted in his interview with Prism. “For example, the high price of fuel–which increases the costs for transportation–has had a much bigger effect on the price of bread.”

Finally, investors have been accused to contribute to the spike in the price of wheat through speculation. CBOT Ms. Haffenberg doesn’t agree; “The Chicago Mercantile Exchange Group has not seen any evidence of speculation causing price increases; rather, the fundamentals of the markets are driving up prices.”

“Wheat is traded globally; it’s a so-called world market traded commodity,” Professor Kim Anderson explained to Washington Prism; “Everything that happens anywhere in the world, on both the supply and demands side, affects the price of wheat everywhere else.” As a result, Egypt, the world’s second-largest importer of wheat, was dramatically hit by all the events described. “In Egypt,” KCBOT’s Mr. Borchard told us, “the policy normally is that of buying the cheapest wheat available on the market. This year it became a policy of buying whatever wheat still available on the market and that was, mostly, US wheat – further increasing the price of this crop.”

Bread for Strawberries

This is not, necessarily, the only policy available to Cairo, at least according to Brookings scholar Khalil Al Anani. Egypt would have the capacity to grow more wheat domestically, decreasing the country’s reliance on foreign markets. However, “it has never developed the infrastructure to do so because of a traditional understanding that wheat takes more water than fruit to grow, and fruit can be sold abroad in exchange for foreign currencies, increasing Egypt’s foreign reserves,” Mr. Al Anani explained. “The fact that fruit takes much less water than wheat to grow is not a scientific fact. It’d be true for rice but not for wheat,” he continued.

This mistaken belief and outdated approach has resulted in an inefficient economic policy, which has laid the foundations for this year’s crisis. In short, “the crisis is a local issue, triggered by old thinking on the part of the elite combined with the globalization of commodities markets that encourages specialization,” Mr. Al Anani told us.

Thus far, the Egyptian government has adopted a few measures in response to the crisis, including a better monitoring of the system and an effort to separate the distribution of wheat to bakers from that of bread to consumers, in order to increase oversight and fight the widespread corruption. “These measures have only been effective in a few places,” Mr. Al Anani told us. There have also been discussions of launching a new strategy of investment in Sudan, which has large pieces of lands that could be turned into cropland. Egypt would send money and labor to Sudan while getting wheat in return. “I don’t think this strategy will work because of the many political differences between the two countries,” Mr. Al Anani explained to us. “Right now relations are on good terms but it’s hard to predict what will happen in the future.” Moreover, this approach seems to only transfer the problem from the US (Egypt’s most important source of wheat) to Sudan.

While officials keep saying that the crisis was a simple consequence of the global food unrest, Mr. Al Anani suggests a three-point plan for reform; “The government should increase the number of bakers.” At present, there are 23,664 bakeries in Egypt, for a population of 80 million people, or one bakery for every 3,380 citizens. “The government should also monitor the activities of bakers more seriously and it should pass a comprehensive legislation that addresses this as a national security issue, re-organizing the production and distribution of bread in a way that will constraint corruption.” According to the Egyptian scholar at Brookings, this, in the end, is a problem that stems from the general inefficiency of the Egyptian government in the delivery of services. “It won’t be solved until the other structural problems are solved,” Mr. Al Anani believes.

Political Solutions to Economic Downturns

The need for Egypt to re-think some of its policies is even more urgent if one considers the longer-term global outlook for agricultural production. For the moment, the near-term forecast for this year’s harvest is more encouraging, “Since March prices have fallen 40% ahead of the upcoming harvest, which is expected to be decent,” Chicago Board of Trade Mary Haffenberg told Washington Prism. Jeff Borchard of the Kansas City Board of Trade agreed: “The price of wheat has now being declining, especially because the expectations for this year’s harvest are that there’ll be a bigger quantity of wheat produced and even of better quality.” In fact, USDA reported that global wheat production is expected to reach record-levels, up 11% from last year.

ABARE’s Australian Crop Report provides data to back such positive assessment; “While conditions across the Australian grains belt have been variable, there is optimism regarding winter grains production in 2008-09…the area planted to wheat is forecast to rise by 13% to a record 14 million hectares. Total wheat production should grow to 23.7 million tons, well above the previous year’s harvest of around 13 million tons.

Nevertheless, studies predict that exceptional climatic events, such as Australia two-year drought, are likely to become increasingly frequent due to climate change and global warming. The Bureau of Meteorology of the Australian Government recently released the results of a survey on drought occurrences. The analysis shows that the extent and frequency of exceptionally hot years have been increasing rapidly over recent decades and that trend is expected to continue. The same appears to be true for exceptionally low rainfalls years. A correlated study conducted by ABARE indicates that future climate changes may affect global agricultural productivity. “For example,” the study says, “global wheat, beef, dairy and sugar production could decline by 2–6 per cent by 2030 and by 5–11 per cent by 2050, relative to what would otherwise have been the case.” Australian production of these commodities could decline even more dramatically, by an estimated 9–10 per cent by 2030 and 13–19 per cent by 2050. As a result, “Australian agricultural exports of key commodities are projected to decline by 11–63 per cent by 2030 and by 15–79 per cent by 2050,” ABARE predicts.

If this scenario is accurate, continued reliance on wheat grown abroad is a risky strategy to pursue for Egypt. “The scarcity of wheat in Egypt matters to the Egyptians more than it matters to anybody else,” Khalil Al Anani told Prism. “The solution should come from some Egyptian-led initiative.”

Originally reported and written for Washington Prism

In spite of the fact that water covers more than two-thirds of the Earth’s surface, 97.5% of it comprises of salt-water. For the most part, the fresh water supply is either stored as ice at the poles, in underground beds that are inaccessible to humans or retained as soil moisture. As a result, only a small fraction of the planet’s water resources, approximately 1% of the total, is available for human use. With the world population growing exponentially, issues of water scarcity are becoming increasingly pressing.

A UNDP report from 1999 predicted that access to water was likely to be the single biggest cause of conflict in Africa in the following 25 years. Almost a decade later, the global pressure on water supplies has increased due to population growth, continued deforestation and climate change, making water an increasingly scarce and precious commodity. According to the World Bank, 1.1 billion people today lack access to safe water, normally calculated as a minimum of 20 liters per day from an improved source within one kilometer of the home.

“Africa’s Lake Chad,” writes Lester R. Brown, founder and president of the Earth Policy Institute, “once a landmark for astronauts circling the earth, is now difficult for them to locate.” The lake, surrounded by fast-growing countries such as Cameroon, Chad, Niger and Nigeria, has shrunk 96% in 40 years. “The shrinkage of Lake Chad is not unique,” notes Dr. Brown, one of America’s leading environmentalists and author of Plan B 3.0: Mobilizing to Save Civilization. “The world is incurring a vast water deficit.” The flow of the Jordan River is also steadily diminishing – along with those of the Yellow River in China, the Mekong in Southeast Asia, the Amu Darya in Central Asia and the Colorado River in the United States. And, as the Jordan River decreases, the Dead Sea is also shrinking. Over the past 40 years, its water level has dropped by some 25 meters and it is estimated it could disappear entirely by the year 2050.

Moreover, with demand growing, several countries are exploiting their groundwater to the point of exhaustion and water tables in parts of China, India, West Asia, the former Soviet Union and the western United States are dropping. According to Dr. Brown, in the Indian state of Tamil Nadu, with a population of over 62 million, wells are going dry almost everywhere because of the depletion of underground water tables. Similarly, Iran is over pumping its aquifers by an average of five billion tons of water per year, causing “water refugees” to abandon their villages in the eastern part of the country as wells dry up.

Considering the extent of the problem, it shouldn’t be surprising that the 1999 UNDP study forecasts that should water wars occur, they would most likely break out in regions where rivers or lakes are shared by more than one country. Lester R. Brown agrees. “Nowhere is this potential conflict (over water) starker than among Egypt, Sudan, and Ethiopia in the Nile River valley.”

The Nile River Basin

The Nile River Basin is a reservoir of water covering 1.3 million square miles, a surface slightly larger than the territory of India. There are ten riparian countries to the Nile River, the longest running in the world: Egypt, Sudan, Ethiopia, Uganda, Tanzania, Kenya, Democratic Republic of Congo, Rwanda, Burundi, and Eritrea. However, three of them – Egypt, Sudan and Ethiopia – account for 85% of the territory that constitutes the hydrologic boundaries of the basin.

Whereas 95% of Egyptians rely exclusively on the Nile for their water supply and 77% of Sudan’s fresh water comes via the river, the Nile originates in Ethiopia and controls 85% of its headwaters. “Ethiopia is an interesting case,” says an economist with the Ministry of Water Resources in Addis Ababa who asked not to be identified by name, “since its economic fate is closely tied to unreliable rainfall and since 90% of its water resources are ‘trans-boundary,’ which means that rivers flow into other countries that inevitably oppose upstream development that might reduce their own resources.”

The already high demand for water in the region is projected to increase steadily through the next forty years. The population in Egypt, today at 75 million, should reach 121 million by 2050. Sudan is expected to have 73 million people by 2050, almost double today’s 39 million. And the number of Ethiopians is projected to grow from 83 million to 183 million.

Population growth is not the only factor of stress on the region’s water resources. David Shinn, former ambassador to Burkina Faso and Ethiopia and professor of International Affairs at George Washington University, told Washington Prism in an interview, “Irrigation projects are the greatest threat to the future of amicable Nile water usage.  Big irrigation projects simply use so much water that never returns to the river system.”

Deforestation and soil erosion also represent a threat. According to Mongabay, one of the most influential climate and environment websites, Ethiopia lost 14.0% of its forest cover between 1990 and 2005. Fewer trees could result from less rainfall. They could also cause worsening soil erosion, which in turn would increase sedimentation and reduce the lifespan of water storage infrastructure.

Competition vs. Cooperation

“Since there is already little water left in the Nile when it reaches the Mediterranean,” Lester Brown writes in Plan B 3.0 , “if either Sudan or Ethiopia takes more water, then Egypt will get less.” Moreover, international agreements grant Ethiopia only a minuscule share of water. “Given its aspirations for a better life, and with the headwaters of the Nile being one of its few natural resources, Ethiopia will undoubtedly want to take more,” Dr. Brown believes.

Possibly the biggest problem with the Nile River Basin is the lack of reasonable agreements among riparian countries on the equitable share of water rights. The most recent one was signed by Egypt and Sudan in 1959 and resulted in a virtual Egyptian monopoly over Nile water. Based on an annual flow at Aswan of 84 billion cubic meters, it allocated 55.5 billion cubic meters, or three-quarters, of the water to Egypt and 18.5 billion cubic meters, one-quarter, to Sudan. “The 1959 treaty remains in effect but is only accepted by Egypt and Sudan.  This is the big problem,” Ambassador Shinn told Washington Prism. The other eight riparian countries do not accept the agreement, but unfortunately there is no formal structure in place for handling such political contentions. “There are periodic bilateral and even regional discussions on water-related issues, but they have not yet achieved a breakthrough on redistribution of Nile water.  That is why this situation could, not will but could, result in conflict some day,” said Ambassador Shinn.

The one example of an attempt at cooperative development of the Nile is the 10 year-old Nile Basin Initiative (NBI). The World Bank-led NBI provides a framework through which its member states can cooperatively make use of the resources of the Nile Basin to fight poverty and promote socio-economic development in the region. Each member has agreed to share information with other riparian states on the projects it intends to launch and, if possible, to undertake joint studies to ensure the sustainability of such projects. The initiative has been regarded as generally successful and the parties to the NBI appear very committed to it. However, Ambassador Shinn believes that the “NBI is an organization that deals primarily with technical and practical issues and not controversial political ones.  It is easier to cooperate on technical matters than political ones.” What remains to be seen is whether the riparian states of the Nile River can find a way to approach the hard-button issues of water rights and water equitable shares.

Responses

The story of the Nile River Basin illustrates the challenges confronting people and policymakers around the world. Current trends in population growth, deforestation, agriculture and the general inefficiency in the way we use available water signal that conditions of water scarcity are only destined to worsen and suggest that conflicts over water resources are becoming increasingly likely.

According to figures from the U.S. Census Bureau, world population is projected to grow from six billion in 1999 to nine billion by 2042. In the meantime, while more than one-fifth of the world’s tropical forests have been cleared since 1960, tropical deforestation continues at rates averaging about 0.7% per year. As for agriculture, close to 70% of the Earth’s freshwater already go towards irrigation projects. The Food Policy Research Institute projects that irrigated cropland area for grains will grow 11% worldwide between 1995 and 2025. Finally, wasteful consumption of water, especially in developed countries, is also contributing to the gradual depletion of global supplies. For example, a report published by the European Union Commission in 2007 estimates that water usage in the EU alone could be reduced by about 40%. As a result, water becomes a more precious resource each day.

If financial markets are any indication of the value of a commodity, a new movement toward the trading of water reinforces the idea that this will be the next most sought after good. It was recently reported that a wave of water purification companies are going public in hopes of increasing their value. “Water companies have become prized acquisition targets as a result of growing concerns over shortages of clean water, the increased infrastructure needs of developing countries, more stringent regulations and an aging water distribution system in the United States,” wrote Euan Rocha for Reuters.

The British economist Roger Bate, currently a resident fellow at the American Enterprise Institute, a conservative think tank in Washington D.C., explained to Washington Prism: “Water is traded amongst farmers, municipalities and industries in many semiarid countries: Australia, Chile, United States, South Africa. It is either literally transferred or the rights to use the water are transferred, much like a contract for many commodities.” Dr. Bates, an expert on water policy, believes that water trading “improves efficiency by allocating water to the most efficient uses, and as such it is also better for the environment.” The premise is that there is enough water in the world for everyone, but it is being used wastefully almost everywhere. What is needed then is a system for allocating water shares more efficiently and an increasingly large number of experts believe that markets can provide such a system.

Trading in water shares is becoming popular even among small investors. Ronald Saville told Washington Prism in an interview, “Water is already a limited resource just when considering it for consumption. Add into the mix the fact that we are going to rely more on it for energy, and its importance for the future is readily apparent.” Saville is a young professional employed in the field of international education in Washington D.C. “I think water will become the next oil and these companies will stand to make huge profits on it, similarly to the way oil companies are making them now,” said Mr. Saville, who has decided to buy shares of a “water mutual fund” known as Powershares Global Water.

Although markets can help allocate a commodity more efficiently by determining the price at which offer meets demand, questions arise as to how they can help distribute equitably a resource such as water, which is equally indispensable to all human beings independent of income, and as to whether or not finance can help preserve it for the future. Oil will be traded at higher and higher prices until it runs out. Unfortunately, while mankind can survive without oil, the same cannot be said for water.

According to Roger Bate, while oil is only slowly replenished, water is a renewable resource. “Water can be commoditized successfully without it ever having to run out,” Dr. Bate says.. “Water markets are based on tradable quotas calculated on supplies. If you set the quotas at below the total amount you will not run out.”  According to Bate, it is crucial then to set the right quotas. “It often happens that a government sets more quotas then there is water to fulfill,” he concedes. However, he believes that “this is not the fault of the market; it is the fault of the quota allocation, in this case the government”.

Even those like Bate who strongly believe in the efficiency of the market as a system of resource allocation see a role for governments and politics in the process. “Making sure people have the funds to be able to afford water is the job of a government, creating a safety net. It is much better that the poor pay for water and get used to paying for it so its not wasted, but that simultaneously they are subsidized to do so. For too long too many users, and notably farmers, have not paid enough for water and wasted it,” explained Bate.

Ethiopia is a very good example of the need for both investments and a political response. Since at an aggregate level Ethiopia still has an abundance of water, the biggest question for Addis Ababa is how to store it, manage it and, if necessary, transfer it.  The economist with the government’s Water Ministry told us: “This is the major concern, since it requires massive finance which of course is not readily available.  In the medium to long term, if investment keeps coming the improved ability to manage water resources will likely more than offset the reduced total quantity of water due to climate and localized factors.  But that may be a big if.”

Since water is a public good and one of the fundamental sources of life, and since it inherently raises trans-national issues, a concerted global political effort at managing and preserving it may be the best strategy for confronting water scarcity and the conflicts that could potentially arise. “I think that there is not much that can be done at a national level, other than more of the same,” the economist with the Ethiopian government told us. “The major solutions will need to be international.”

Originally reported and written for Washington Prism

Washington D.C. – While American consumers are just beginning to wean themselves away from gas-guzzling SUVs and move toward more fuel-efficient options, Pete Rasmussen has been pursuing an environmentally sustainable life for some time.  With a degree in environmental studies and a focus in sustainable food systems, Rasmussen began experimenting with bio-fuels three years ago in an effort to power his 1982 diesel engine truck.

“Once I made a batch of bio-fuel with three friends in a garage,” he recalled. “We had collected the used vegetable oil from a local Thai restaurant the day before, nearly 55 gallons.” A few days later Rasmussen’s truck was running on the home-made fuel when as he was driving to school he felt overcome by hunger. “I rolled down the windows, squinted my eyes, furrowed my brows and sniffed the air: Thai food. I craved spring rolls, pad Thai.” After the initial surprise, Rasmussen realized it was the bio-fuel that triggered the cravings. “This is the danger to using bio-fuel; the hunger factor from the exhaust. At least I wasn’t craving French fries or doughnuts.”

The idea of powering vehicles with bio-fuels is not a new one. Robert Diesel debuted his invention, the diesel engine, at the World Exhibition in Paris in 1900 and ran it off peanut oil. The father of the modern automobile, Henry Ford, built ethanol plants in the Midwest in the early 1900s because he was convinced that as a renewable resource, bio-fuels would be vital to the automotive industry. By the early 1920’s about 25 percent of all fuel sales were bio-fuel. In the 1940s however, petroleum companies had undercut the bio-fuel industries and they were left mostly forgotten except by a small minority of environmental activists. Yet recently the use of bio-fuels has jumped to the forefront of the public debate.

On his trip to through Latin America in March, U.S. President George W. Bush struck a deal with Brazilian President Luis Inacio Lula da Silva to further develop alternative energy resources. Under Bush’s 20/10 program he has proposed that the United States reduce its gasoline dependence by 20 percent in the next 10 years. In his last State of the Union Address, Bush listed the environment as the third national priority for 2007. “Our third goal is to promote energy independence for our country, while dramatically improving the environment,” Bush said.

After being ignored for so long, the sudden interest in bio-fuels has risen as a way to cut American dependence on the import of foreign oil, a problem made more worrisome by the deteriorating situation in the Middle East.

Increasing the production of American-born ethanol, a clean-burning alternative to gasoline produced from renewable sources, is the solution called for by Congress as well.

Supporters point to the advantages of this clean, renewable fuel made from vegetable crops; lower emissions, greater engine longevity and improved performance.

In a phone interview, Rich Carter, spokesman for Rep. Don Manzullo (R-IL) said, “Ethanol and bio-diesel are American made, we do not need to rely on foreign government for their supply, they are renewable, good for the environment, and for us in Northern Illinois – where we have large production of both corn and soybeans – they also represent an important new market for our farmers.”

A growing consensus in Washington sees bio-fuels as the solution to the nation’s energy needs.

However, skeptics point to the fact that most of the ethanol produced is corn-based. They contend that corn-based ethanol is not an energy efficient raw material, or feedstock. “Out of every one unit of energy that is put into its production, only a maximum of 1.3 new units is obtained,” said Janet Larsen, director of research at the Earth Policy Institute (EPI), a think tank in Washington, D.C. devoted to environmental issues.

Also, if the United States increases its consumption of ethanol, the related spike in the demand for corn is bound to drive up the price of the crop. This trend is already taking place, as reported by the Wall Street Journal. At $4.05 a bushel, the price of corn as traded on the Chicago Board of Trade, an exchange for commodities, is almost twice as much as it was last year.

The rise in the price of corn is also likely to cause the prices of many other commodities to rise. Refrigerators in the United States are filled with corn, contained as a sweetener in drinks or breakfast cereals, but also found in milk, eggs, cheese, ham, ground beef, ice cream, and yogurt.

Concerns are also spreading abroad. Corn importers like Japan, Egypt, and Mexico are worried that a reduction in American corn exports, driven by an increase in local consumption, will threaten their livestock and poultry industries. In sub-Saharan Africa and in Mexico, additionally, corn is the staple food for the population.

So can the United States produce enough corn for both food and fuel? Lester Brown, president of the EPI, writes; “In looking forward to 2007, first we need a rise of 73 million tons just to overcome the 2006 production shortfall. Beyond that we will need 24 million tons of additional output to cover the estimated annual growth in food and feed needs. If we then add 39 million additional tons to supply the new distilleries for ethanol, for the United States alone we are looking at a growth in demand of 136 million tons of additional grain from the 2007 harvest.”

However, the average global growth in the grain harvest has only been around 20 million tons per year since 2000, the EPI found. The chances that the American corn industry might provide such a huge jump in the harvest next year are not good, even with the stimulus of high grain prices.

As Bush advocates for ethanol as a viable alternative to fossil fuel, the time seems to have come to start thinking about alternatives to the alternative.

Other countries have already successfully experimented with different feedstocks. “In Brazil they produce ethanol from sugar cane, in a way that seems much more efficient,” Larsen said. “Especially because they produce the ethanol from the sugar part of the plant but they also use the leftovers, such as the woody cane, to power their boilers.”
Larson added that France, on its part, uses sugar beats quite efficiently.

In the United States, ethanol is still almost entirely made out of corn, partially because the country does not produce other feedstock as well. “It is also true that the corn growers’ lobby is quite influential and it has successfully pushed for the use of corn in producing ethanol,” Larsen said.
Nevertheless, experts are evaluating the potential of other materials as feedstock.
Switchgrass, a summer perennial grass that is native to North America, could be promising.  Switchgrass is resistant to pests and plant diseases, and it can produce high yields with very little fertilizer. It is also very tolerant of poor soils, flooding and drought.
Hemp could be another possibility since, thanks to a relatively short growth cycle of 100-120 days, it is an efficient economical to grow. Although the use of hemp is legal, its use is complicated by legal issues due to the plant’s association with marijuana. Hemp and marijuana come from different breeds of the same plant, Cannabis sativa. “I hear hemp is a great feedstock for ethanol, but it is such a politically charged issue in this country,” Larsen said. “It seems that in other places they are making much better use of it.”

A growing number of activists are attracted to the potential of algae. “In my opinion, algae is the answer. It can be grown on marginalized lands where nothing else lives and it thrives on agricultural runoff and other brackish water, as such it is not a sink for precious fresh water,” said Sonia Rani, an account coordinator with Antenna Group, a public relations firm that works with renewable energy start-up companies. “Some algae actually physically leak hydrocarbons and many varieties double in population every day, making it possible to get many harvests in one season.” However, research on algae is still in the initial phase and will take time before it becomes commercially viable.

While debates rage over which feedstock will provide the best bio-fuel, a much more simple answer to American energy needs may have been lost in the squabbling. As Larson pointed out; “One easy way to address our dependence on foreign oil, environmental issues, and the problems related to corn-base ethanol, is to increase the fuel efficiency of our vehicles.”

Originally reported and written for Washington Prism