Bloomberg, Steyer: Think CA drought is bad? That's just a preview

Bloomberg, Steyer: Think CA drought is bad? That's just a preview
The dry lakebed of Laguna Lake, San Luis Obispo County, California.

The day after California officials measured an alarming new low in the snow pack that feeds California’s water supply and its governor ordered the first ever water restrictions, a group of high profile business leaders warned of nationwide economic risk that could ripple from climate change impacts on even just this one state.

Former New York City Mayor and media mogal Michael Bloomberg, former U.S. Treasury Secretary Henry Paulson and financier Thomas Steyer cast their analysis of economic risks tied to climate in California as both a harbinger of challenges to come elsewhere and a recognition of this state’s huge role in the nation’s economy.   

California, noted the authors of the report compiled by the Risky Business group, “is a microcosm of the nation’s diverse economy and geography,” since it “leads the U.S. in agriculture, manufacturing and tourism and is a major international exporter.”

The report's title, 'From Boom to Bust? Climate Risk in the Golden State' underlies the key question for businesses deciding whether to act on the issue, which the authors frame more as a measure of self preservation than feel-good environmental activism.

“The business and investment community have to incorporate climate risks into the DNA of their decision making," said Kate Gordon, editor of the report"These risks should be evaluated when they are making capital decisions on infrastructure investments and supply chain decisions."

But even as the Risky Business group suggests that their business peers mitigate climate change risks, Gov. Jerry Brown excused the state's biggest agricultural operations and oil and gas firms from making significant change in how they do business, critics complained. Large farms are excused from the 25 percent water use reductions.

Businesses headquartered in California include several of the world's largest companies — more among the S&P 500 than any other state. Apple, which has been the world's largest company by market capitalization, is headquartered here, along with runner up Google as well as some of the nation's largest defense contractors and agriculture companies. 

In addition to in-house corporate sustainability measures, that business stature could be put to use on advocacy, Gordon said.

"Business plays an outsized role in influencing U.S. policy makers," he explained. "They should do so on climate change mitigation and adaptation. The business community needs to have a strong and vocal role."

The most direct tie the analysis found between climate change and economic impact was greenhouse gas emission-induced rising temperatures leading to declining water supplies and thus, in turn, lower agricultural output. 

“California’s major crops, livestock and dairy operations face distinct threats from climate-driven temperature variations across the state, which could have major repercussions on local and global markets," the report notes.  "Without significant adaptation by farmers, several regions will likely see yield losses for heat sensitive commodity crops.”

Indeed, two-thirds of the nation's fruits and nuts are harvested in California, as well as a third of the nation's vegetable supply and a fifth of its dairy. Certain crops such as almonds and broccoli are supplied almost exclusively by California.

"The mission of the Risky Business Project is to quantify the economic risks to the United States from unmitigated climate change," the authors state. 

Is the drought an omen?

In some ways, the warnings in the report almost pale in comparison to reality on the ground.

California’s record drought — caused by a combination of warmer-than-normal temperatures for four years running and record-low rain and snowfall — has led to depleted reservoirs and a snow pack that is only 6 percent of normal.

The mountain snowpack in the state is important because in the not-too-distant past, it supplied about a third of the state’s water supply after melting and filling up reservoirs. But that isn't happening this year, and it didn't happen last year.

State officials on Wednesday went to a spot in the Sierra Mountains to take their annual snow pack measurement, and it was a bleak gathering.

“We didn’t find any snow, so this obviously is a significant glimpse of our water” situation, said Mark Cowen, Director of the California Department of Water Resources, in a press conference on Wednesday. Snow in the California mountains usually provides about 15 billion acre feet of storage of water.

On the same day as the startling measurements, California Gov. Jerry Brown announced an executive order requiring a 25 percent reduction in water use.

“We are standing on dry grass, and we should be standing on five feet of snow,” the governor said.  Although this state has endured droughts before, he called the severity of this one “unprecedented territory” for California. 

Brown ordered water utilities and towns and cities to enforce a 25 percent water reduction among their customers — residents, businesses, college campuses and other institutions. The order also explicitly called for replacing some 50 million acres of public lawns around the state with native plants that don’t demand water.  It also the banned certain things like building subdivisions with built-in sprinklers or watering medians between roads.

But the 25 percent reduction in water use order does not apply to large farmers, or those with more than 25,000 acres.

Karen Ross, Secretary of the California Department of Food and Agriculture, said that is because farmers have already reduced water use — by physically just not having water available to them.

Two large water projects, systems of dams, canals and reservoirs along California rivers that are maintained by the federal government and the state, have been depleted as well. The federal Central Valley Water Project has not been able to supply any water to farmers this year and the state water project supplied only 20 percent of usual.

Farmers left about 400,000 acres fallow this year for lack of irrigation water, and in so doing took about a $4.5 billion hit in yield losses, Ross said. That also cost the state 1,700 jobs, she said. She said she expects an additional 100,000 acres to be left fallow this coming planting season.

“That is farm and wage income that is not going to materialize,” Ross said.

Still, agriculture uses some 80 percent of water available to California, begging the question of how large-scale reductions would be possible without new policy measures aimed at large farming operations. The same is true to varying degrees with oil and gas companies who use large amounts of water for oil exploration operations including fracking.

"It is disappointing that Governor Brown’s executive order to reduce California water use does not address the state's most egregious corporate water abuses. In the midst of a severe drought, the Governor continues to allow corporate farms and oil interests to deplete and pollute our precious groundwater resources that are crucial for saving water," said Adam Scow, director of Food & Water Watch California.  

The new normal

The authors of the Risky Business assessment cautioned not to consider the California drought an anomoly, but a forecast of the coming norm.

“How should business look at this historic drought?" Gordon said. "I’d say it is important to not look at just what is happening today. The point of the Risky Business assessment we did is to point out this is not a freak incident, this is a trend."

“What was a one-in-a-hundred chance (of a drought) will become a one-in-ten chance.This is not a single year or single decade phenomenon but a long term trend,” she said.

Businesses who depend on California products seem to be taking seriously what the drought could mean.

General Mills, though based in Minnesota, signed onto a declaration about conserving California water that was launched by the Ceres, an advocate of socially responsible investing and organizer of a a Investor Network on Climate Risk.

"California farmers and suppliers from all across the state provide a large number of ingredients for our products. It is because of this that we are actively working with The Nature Conservancy to provide farmers and agencies with examples of best management practices and sustainable groundwater management concepts that can be applied statewide,” said Shannon Heine, a communications manager at General Mills .

“Like many of California’s citizens and businesses, we want to see California’s water managed sustainably for everyone’s use, now and long into the future,”  she said.

Kirstin James, senior manager of water and policy at Ceres, also said this week’s news of a new low in California’s water supply and the governor’s executive order to reduce water consumption are a signal to business to get involved.

“Companies with a water footprint in California can do their part by committing to and implementing water conservation, watershed restoration, water recycling, storm water capture for use.  The companies that have signed Ceres' Connect the Drops Declaration are stepping up to the plate to do just that and we encourage others to as well," she said.