The Green Gap

In the Cold War, we feared a Missile Gap was a strategic weakness. Nowadays, we must awaken to the fact that the Green Gap is true strategic weakness: the nations whose economies will thrive in the coming years will not be those with the biggest factories, but those with the most sustainable, efficient, and ecological markets. What we require is a Strategic "Green Reserve" of ecological design to weather the coming changes that both climate and resource scarcity will force on the international economy.

Saturday, 28 May 2011

China's Water Woes

This year could be a bad year for Chinese crops due to drought, but other things get affected by a lack of water, namely: hydropower projects. Of which, China has the biggest in the world.
Total capacity at the Three Gorges hydropower project amounts to 18.2 gigawatts, the equivalent of about 15 third-generation nuclear reactors and more than a third of Hubei's total. It generated 84.4 billion kilowatt-hours of electricity in 2010, delivering power as far afield as Shanghai on the eastern coast.
On June 10, the water will be so low that they will have to stop discharges. Now, imagine pulling 15 nuclear reactors off the grid all at once in a country whose industry is already facing severe power shortages. A very telling quote from one of the linked articles states:
Power deficits in the 26 provinces and regions serviced by State Grid Corporation of China would total 30 gigawatts in the summer, even if coal supplies remained steady, water levels were normal and there were no persistent high temperatures.
So they are going to be short 30 gigawatts even if the Three Gorges Dam keeps running - which, as of June 10, it will not - and if coal supply keeps steady - which, if these reports are to be believed, is not the actual problem facing coal generation. Coal plants are running out of money in China because they are getting squeezed by electricity price controls on one hand and the rising price of coal on the other.

The drought is not a new story. Since mainstream media has the attention-span of a ferret, the story seems well nigh ancient. Yunnan, in the far south, has been affected. The Yangtze river basin, too, has been badly affected... but the antecedents go back for years:
China's north has been suffering from a lack of rain for nearly 15 years -- largely attributed to global warming -- while the south, especially the Yangtze river basin, has been prone to flooding during the annual summer rainy season.
So the Yangtze is experiencing extreme weather in line with global warming predictions, and this has been happening for 15 years. Now, the drying has gotten so extreme that even though the Yangtze flooded mid last year, it's now running far drier than before.

So what do we take away from this? A few things. The Chinese will need to buy rice and wheat this year, probably in record amounts. In order to do so, they may allow the yuan to appreciate in value. China may not be able to hold back the tide of inflation, a beast that has been licking its chops for years waiting to pounce on the Chinese consumer. Food prices will absolutely increase. If this is all combined with a fuel price shock, there will be dire problems in the Heavenly Kingdom. Not saying a fuel shortage will happen, but it could, given the volatile market. I'm not a betting man, but I do believe in Murphy's Law. Fuel could have a deep impact in this situation.

The further complicating factor regarding fuel is the transportation infrastructure. Transport monopolies/oligopolies in China are forcing a great deal of produce to remain in the fields because farmers spend all their profit on transportation and because produce prices have dropped. Transport companies can't make a profit margin unless they haul illegally, because road tolls are so steep. If a fuel price fluctuation jumped into that margin, trucking companies would make more money by closing shop. Farmers everywhere, it seems, are damned if they do and damned if they don't. An interesting aside: road tolls are, of course, provincial matters. Even though the central government wants to reduce them, the final decision rests in the provinces. China has had this same centre-versus-periphery problem for five thousand years. It's not going away just because of some measly nation-threatening drought... it's a tradition!

All my Chinese friends: if you can take a vacation somewhere with wheat, I highly recommend you do so for the rest of the summer. As a matter of fact, you should take an Alberta Break. By July, the Yuan will probably have been upgraded in value so you'll probably be able to buy a few extra steaks for your money before you head home for Autumn. Take it easy guys, we don't know exactly what the government is going to do to fight the inflation, but knowing China, it will be massive and centralised. I imagine they may just try to buy the Ukraine.

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