By J Mulraj
Aug 21-27, 2022
Fiddling while the world burns
Looking to the climate changes happening all over the world, it is hard to believe that these world leaders took pledges to address them, just ten months ago, at the COP 26 at Glasgow. Did Biden/NATO not realise, before snubbing Putin’s demand not to admit Ukraine into NATO, how very vulnerable Europe was, in meeting its energy needs, to Russian fossil fuels? Did Putin not know the amount of carbon emissions he would be generating from, at the very least, the 40 mile long convoy which invaded Ukraine, and the constant launch of missiles, since? Was Xi Jinping not aware of the damage to the environment caused by daily incursions into Taiwanese airspace of his jets? Did Pelosi not factor in the subsequent environmental damage before embarking on a foolishly unnecessary visit to Taiwan?
Are they all not modern day Neros, fiddling while the world burns?
Mother Nature isn’t taking all the abuse lying down. It’s hitting back with full force. And blinkered investors, unmindful of what lies ahead, continue laboring under the belief that all will be well. It won’t, alas.
The effects of climate change will be felt on industry, on food production, on supply chains, and more.
Across the world, in USA, Europe, China, India and other countries, there is severe drought.
In Germany the Rhine river is drying up, affecting not only water supply to industry and households but also for logistics. The river is used for transporting coal to power plants, and goods to ports, and reduced water levels means smaller loads on barges. With lower coal supplies, and with an 80% cut in gas supplies by Putin, Germany has fewer options and the prospect of a bleak winter. It is restarting nuclear plants that had been shut down.
The COP 26 pledges were to reduce dependence on fossil fuels. The Ukraine war has, ironically, increased dependence. Use of crude oil and of coal is increasing, and their rising prices are spurring inflation.
Interest rates need to be raised to combat inflation, and this, in turn, leads to recession. Biden/NATO averred, later, that there were no plans to admit Ukraine into NATO, after the invasion was launched – could they not have stated this earlier and prevented a totally avoidable catastrophe?
Are they not modern day Neros?
Climate changes have consequences for investors, for they will throw up challenges, and raise ethical issues, for policy makers. In the German town of Luneburg, local residents are opposing the application of Coca Cola for increased allocation of water, needed for its beverage production (https://injuredly.com/luneburgers-and-coca-cola-who-owns-water/). The company, a favourite of legendary investor, Warren Buffett, has shelved its application for now. It faces the same battle, over local residents, in other places, such as in the town of San Cristobal, in Mexico.
Coca Cola had been granted water rights by a former President of Mexico, Vicente Fox. Prior to becoming President, he was a truck driver for Coca Cola. Residents of San Cristobal are up in arms, as it affects their livelihoods.
France is also facing a huge water problem. It produces 30 m tonnes of wheat and is the fourth largest exporter in the world. Its wheat output, and exports, will be hit by water scarcity. A shortage of wheat, and so of bread, has caused food riots in poorer countries. This time it may be in richer ones, too.
Ground water levels are dangerously low in Punjab, India, which is the food basket for India, and grows enough to feed a billion people. Foolish supply of free electricity by politicians seeking electoral votes, have led to over pumping of ground water, leading to the crisis. All these politicians promising freebies without any thought of future consequences, are modern day Neros.
USA, too, faces immense water shortage problems. The Colorado river, which runs through 7 states, Wyoming, Colorado, Utah, New Mexico, Nevada, Arizona and California, is drying up. In this, must see, video (https://youtu.be/9edWX7TTsLw) we learn about the huge quantity of water rights, the largest, from the Colorado river, granted to the Imperial Irrigation District (IID), a power company in Imperial, California. Even though California is furthest away from the river source, IID has preferential rights over its water.
But what does IID use the water for? A large part is used to grow alfalfa, a feed crop for livestock animals, used to produce meat. Shockingly, 75% of the alfalfa is exported to China!!
Remember how Biden had, last year, exported crude oil from America’s strategic petroleum reserves, meant for use in war, to China? And now it’s exporting water, too, after converting it to alfalfa. And soya, used to feed pigs.
In fact the animal farming industry, meant to provide meat for a non veg diet, is one of the biggest causes of water scarcity. While it needs 322 litres to produce 1 kg of vegetables, it needs 15415 litres to produce 1 kg of beef .
Science is, however, addressing this problem, and has developed lab grown meat. Using a thumb nail sized sample of meat from a cow, enough meat can be grown in a Petri dish, in days, which would need maybe 8 cows to produce, in months. With an equal taste, but a lower price, even a climate change sceptic should be willing to convert.
The semi conductor industry, too, requires huge quantities of water for production. Governments are giving monetary and fiscal benefits to attract investment in semiconductors, including in India. In America, strangely, companies like Intel and TSMC are setting up plants in arid regions, like Phoenix Arizona, with little water supply. However the companies are, jointly with the city, also establishing water purification plants. Water from these can, after purification, be reused at the plant, or used in irrigation, or to replenish acquirers. One hopes that GOI also mandates such water purification facilities to companies it provides financial incentives to.
So a persistent water shortage will impact people, and businesses, in many ways. We can expect huge food shortages, leading to famine, and food riots, in several countries. We can expect water shortage, as well as the consequent logistical issues, to affect electricity generation. this will lead to a rationing of power for industry, causing an across the board shortage of goods. This, in turn, will exacerbate inflation. Despite Jerome Powell’s assertions at Jackson Hole, we will be in a deeper financial hole.
Last week the BSE Sensex dropped 812 points to close at 58833.
The US stock market, as well as gold, dropped after Jerome Powell’s speech at the Jackson Hole summit. In September, he is likely to raise the Fed fund rate by a similar, 0.75% as in the previous two meetings, to fight inflation. People are expecting that the renegotiation of the Iran nuclear deal would be completed soon, allowing its oil supply to resume within a few months, bringing down crude oil prices, and, with it, inflation. On the other hand, food price inflation will go up, due to wheat and fertiliser shortage, so will manufacturing goods inflation, due to power cuts and supply chain logistic issues, so will wage inflation, due to higher wage demand and labour shortage. So Powell has a long fight ahead. So do stock markets.
Rising interest rates will reduce consumption, leading to recession. Perhaps a recession is what the doctor, ie God, ordered! The human race needs to cut back on the orgy of consumption and exploitation of natural world. Supply of natural resources like fossil fuels, minerals, arable land, water and clean air, is static, not rising. Because God is on a sabbatical!
Putin, Xi and Biden should put down their fiddles, should start communicating with each other, and stop putting their egos ahead of their common sense.
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