Don’t you love a great sports analogy? As often as they are used, it really is time for the financial industry to step up to the plate, take the shot, and be part of the climate change solution.

I take current reports on the financial industry’s potential impact on climate change and the impact of climate change on the financial industry to illustrate how importance it is for the lenders and financiers to take climate action, however big or small, today!

The financial industry’s climate & economic impact

“A study authored by the Sierra Club and the Center for American Progress shows that eight of the biggest U.S. banks and 10 of its largest asset managers combined to finance an estimated 2 billion tons of carbon dioxide emissions, based on year-end disclosures from 2020, or about 1% less than what Russia produced.” See https://www.bloomberg.com/news/articles/2021-12-14/wall-street-may-trigger-climate-financial-crisis-green-insight.

That does not include Scope 3 emissions, which would have greatly increased the financial industries total carbon dioxide emissions.

The report notes that insurer Swiss Re wrote in May that the global economy risks losing more than 18% of current GDP by 2048 if no action on the climate crisis is taken. For perspective, the U.S. economy contracted by about 4.3% during the Great Recession. See https://www.bloomberg.com/news/articles/2021-12-14/wall-street-may-trigger-climate-financial-crisis-green-insight.

Bloomberg writer Tim Quinson further states “To mitigate climate-related financial risks posed by Wall Street’s exposure to high carbon-emitting industries, the report states that regulators including the Securities and Exchange Commission and Labor Department should at least take the following steps:

• Require all financial institutions disclose all emissions embedded in their portfolios and attributable to businesses for whom they provide services.

• Ensure that investment fiduciaries keep their commitments to clients and the public, including those related to how they invest and vote their shares.

• Incorporate climate risk into the supervisory ratings they assign to banks.

• Administer climate-related stress tests to identify the banks’ potential losses from climate change (Moody’s Investors Service estimates that banks globally have $22 trillion of exposure to carbon-intensive industries).

• Require that banks fund riskier investments with more equity capital and less debt.

• Implement climate-risk surcharges on “global systemically important banks.”

• Adjust deposit insurance premiums to reflect climate-related risks.

• Proactively address racial and economic justice issues that intersect with such climate-risk related reforms.”

That a long list for the regulators to tackle. While regulation is needed, an approach that involves the finance industry’s own tested standards and requirements would go along way to a bipartisan agreement in Washington and high private sector adoption.

How an interpretation can catalyze an industry

The tip of the melting iceberg is up for interpretation. The SEC requires publicly traded companies, including those eight biggest U.S. banks, to disclose material risks as part of their public disclosures. What is material used to only include financial risks traditional to the business sector like cash on hand, liabilities, and accounting. However, in a changing climate, it is hard to ignore the expensive climate risks plague the companies and individuals banks are invested in.

Since the Biden administrations push to combat climate change the regulatory agencies scrambled to increase climate enforcement and communicate with the regulated:

• SEC Chair Gary Gennsler states that his staff is working a rule for further climate risk disclosures See https://www.sec.gov/news/public-statement/gensler-amac-2021-07-07.

• President Biden issues an executive order on Climate-Related Financial Risk directing the Secretary of the Treasury Janet Yellan to assess the risks climate change poses to the American financial system with a sight on future regulatory actions. See https://www.whitehouse.gov/briefing-room/presidential-actions/2021/05/20/executive-order-on-climate-related-financial-risk/.

• Commodities Futures Trading Commission ('CFTC') established its Climate Risk Unit. The Climate Risk Unit is focused 'on the role of derivatives in understanding, pricing, and addressing climate-related risk and transitioning to a low-carbon economy' while addressing the 'industry-led and market-driven processes in the climate—and the larger ESG—space.' See https://www.cftc.gov/PressRoom/PressReleases/8368-21

• The SEC announces a Climate and ESG Task Force in the Division of Enforcement.

• In September of 2021, SEC sends out letters reminding publicly traded companies that it is selectively reviewing company disclosures for climate risk disclosures. See https://www.sec.gov/corpfin/sample-letter-climate-change-disclosures.

The business case for unlocking the financial industry’s climate impact potential

Will there be increased enforcement of ESG disclosures and material risks? I think so. Even if the Democrats lose ground in the senate and the house in the midterm elections, a very real possibility as inflation harkens back to Bill Clinton’s “it’s the economy stupid,” the regulatory agencies will still have the power to interpret what is material to encompass climate risk disclosures.

It is also in the financial industry’s best interest. By creating standards that fit within their operations and actually make their portfolios more resilient, they can influence what the regulators require and look for. Getting ahead of the rule making process will pay dividends in the future.

What are the rules and standards that need to be addressed by the financial institutions? An interesting development is a new collaboration among major global banks through the Office of the Comptroller (OCC). See https://www.americanbanker.com/news/occ-outlines-climate-risk-standards-for-big-banks. Major banks like Bank of American and Wells Fargo are beginning to ask the question “what standards should we apply when assessing climate risk in our portfolios?” The answer could help both the private and public sector avoid some of the major climate change risks on the horizon.

Another important regulation for the financial industry to think about is H.R.1187 - Corporate Governance Improvement and Investor Protection Act. This bill, while a low chance of passing, highlights the questions and problems the financial industry should address in the climate change space. The bill seeks to do the following:

• to address various areas of corporate disclosures including: ESG disclosures, shareholder political transparency, accountability in pay, climate risk disclosures, disclosure of tax havens and offshoring, workforce investment, preventing and responding to workplace harassment, cybersecurity disclosure, governance through diversity, disclosure of the use of forced labor, and other matters, and

• focuses on the 'sectors of **finance**, insurance, transportation, electric power, mining, and non-renewable energy’. [emphasis added]

• While the details are yet to be finalized, the finance industry may have to account for all the companies for which it invests in or loans money to.

The finance industry will not only want to figure out how to track the emissions of the companies they are invested in, but also how to disclose and use that information to build resiliency in their own operations.

Extreme weather events are expensive

Specifically impacting the financial industries borrowers and investors are extreme weather events. Those events that are hard to predict but can be the tail risk that dooms a portfolio. These extreme weather events are becoming more frequent and increasingly expensive.

Flood damage alone is predicted to hit $13.5 billion in the U.S. next year.

The total damage of extreme weather will build upon the $99 billion already incurred by American taxpayers in 2020. In 2021 alone, one in three Americans were affected by extreme weather. According to the U.S. Climate-Related Financial Risk: Executive Order 14030 A ROADMAP TO BUILD A CLIMATE-RESILIENT ECONOMY, October 14, 2021. “Climate-related disasters from extreme weather cost an additional $600 billion in physical and economic damages over the last five years.”

When supply chain efficiency is reduced and agriculture is no longer predictable, the foundation of the economy begins to erode.

Hail Mary or one-percent improvements

We heard at COP26 that the likelihood of a hotter planet in the future is likely and the worst-case scenarios are becoming more probable than ever before. The finance industry can make a major impact, but realistically, major change takes time. Whether we can initiate a Hail Mary pass by increasing tech innovation and supporting business adoption will happen remains to be seen. Today, the finance industry can start with small improvements, 1 percent improvements at a time, to reduce exposure to fossil fuels, adopt a disclosure framework, and begin to hold companies lent to accountable for disclosing their climate impacts.

I hope for rapid innovations and adoption of climate change practices, but in case that is slower than expected, let’s make progress where possible. The ball is still in your court financial industry.

I want to take a step back from the cliffs of data, policy, and climate tech insanity to focus more on one of the most important questions we can ask ourselves, “How’s that working out for you?”

While the technical is critical and the startup scene as a hotbed for innovation is important, we still have powerful opposition to climate change decision making. There are still climate deniers, slow progress on standardizing financial sector climate change reporting, and many parts of “first world” countries that cannot provide electricity or clean drinking water to their population.

There is something else that needs to be part of the climate change narrative. Foundational to all the other reforms and discoveries is creating a united front to tackle current problems and future risks as they arise. There needs to be a story that each and every one of us is a part of. It's our world. It's our story.

Storytelling is the oldest form of communication and thriving today

From the Ancient Greeks, and no doubt before them, to the micro-stories shared on Twitter today, we are a story hungry species. Sharing information in creative ways is one of the few things that lead humans to adapt and thrive on this planet. Stories shape our perceptions, shine light on our hopes and fears, and provide foundations for governments, religions, and communities. Stories hold great power.

The power of stories can also lead to conflict and obstruction of the truth. Countless times in our modern world we witnessed governments ignore facts on climate change, racial inequity, income disparities, and gender discrimination to name a few. There are stories on both sides that provide a foundation for groups to debate, accuse, and hate. 

Equally as powerful as story is our ability to understand, learn, and reason. These are essential if we are to reach out to those clinging to their story and offer a bridge to connect them to ours. Mutual understanding and respect for each other and the planet we share must come from connecting our stories so they reflect the simple truth: we are all connected. 

Current narratives of doom and gloom turn some groups off

When we report the impending doom of the planet every day it's akin to setting an alarm to wake up at 5 AM but always hitting the snooze button, it no longer has an impact. And for those already unsure about climate change or downright antagonistic, it will just become background noise, or worse, fodder for late night tweets. 

University of Michigan sustainability professor Andy Hoffman states “To be effective, climate communicators must use the language of the cultural community they are engaging.” 

Meeting people where they are at is a key component of getting people to engage and participate in the climate conversation.

Language is critical and the current climate narratives are a mix of scare tactics that seemingly take a page out of the 1980s and 1990s anti-drug programs like D.A.R.E., and a pile of jargon that will switch the average reader's attention off. How does one connect to diverse communities and engage in climate translation?

The ability to adapt to a changing climate requires a mental shift

I could easily point the finger at those who are lapping up the misinformation around climate change and think they should be more informed. However, I would rather focus on what I can control:

“You have power over your mind - not outside events. Realize this, and you will find strength.” - Marcus Aurelius

I can make a mental shift and realize that the information available to many is either a challenge to understand because it is too technical or it is written in a way that does not connect with their experience, or both. As someone who spends most of my time thinking about these climate issues, it is within my control to communicate better. I think it is within your control too.

A shared problem requires shared participation in the solution

Our connected, largely democratic world is a double edged sword. We get to make decisions together, but we also have to make decisions together. One group can rarely get away with unilateral decision making, and when done, does not last very long.

Look at the U.S. Affordable Care Act (ACA) that promised to reduce healthcare costs for everyone. It was almost unilaterally pushed through by the Democrats in power and after the historic victory, the ACA had parts gutted and many of its promises unfulfilled as opposing forces sought to dismantle it bit by bit. 

Look at the Trump administration's assault on public lands. Unilaterally pushed forward by Republicans and their fossil fuel extraction funders, it is now being flipped on its head as Democrats regained power in Washington. 

There needs to be a shared vision and solution to climate that does not vilify every corporation, endorse every group’s challenge to a project, or accept large amounts of money from lobbyists narrowly focused on protecting their industry.

We need people to share common values and understanding before we get into discussion over carbon taxes, markets, and jobs.

Rethinking the climate change narrative

The story can NOT be about us vs. them, or fear. The narrative must be embraced and the old must be gently put out to pasture. We have to rethink the narrative in a way that connects people to the problem and provides space for a diversity of solutions. This is achievable if, at a minimum, the following is incorporated into the new climate narrative:

1. Reduce the scare tactics.

In the last 20 years I have experienced a major attack on U.S. soil, multiple devastating economic recessions, the absurd increased costs of housing, healthcare, and education, and a global pandemic that has claimed more American lives than World War II. This place is scary enough, we don’t need more scare tactics around climate change. 

What we need is hope, innovation, and movements in our collective consciousness towards solution building. We need a Super Bowl for climate action and the Academy Awards for scientific breakthroughs. Inspiration followed by hard work is all we have to get us through the next 20 years. Let’s embrace that. Lean into optimism.

2. Relate the studies and scientific papers to people’s everyday experiences.

There are a multitude of resources on the internet discussing the risks associated with our changing climate. World Wildlife Fund and the World Resources Institute each have water risk mapping tools that give you a regional look at what’s at stake. But how does that impact the commute to work, the cost of food at the local grocery store, the cost of gasoline, or the electric bill. For many, those are the only things that matter. 

We have to do a better job at connecting life as it is today to the risks and innovations of tomorrow. This can be interviews, infographics, maps, forums, private networks, or getting academics out of the ivory tower and into the grit of real life. Real data is dirty, the earth is mud and rock and bugs, humanity is complex, flawed, rational and irrational all at once. 

It's not a neat box or one algorithm that will save us. It is each and every one of us that will save all of us. 

3. Create shareable information.

Finally, to create a new climate narrative we have to embrace the information distribution channels. Bit-size thoughts string together by hashtags, links, likes, followers, impressions, and influencers are how the new climate narrative scales. Much like a virus for good, the new climate narrative must infect the siloed networks that people build around them, make copies of the new narrative, and spread. 

Exchange of ideas has always been about networks. In the modern world, networks span globes, class structures, political affiliations, age, gender, ethnicity, and the list goes on. We are as multi-dimensional as these networks and each one of us can work to simplify a part of the greater narrative and share that within our varied networks.

Climate change is a complex system of issues, but the new climate narrative breaks down that complexity into its more simple components and shares just enough of that component, with a context the relates to the recipient, and a trail of breadcrumbs for them to connect the dots and make sense of it all on their own journey. 

We are all the solution and it is only our collective work that will deliver that solution in time.

Artificial intelligence, carbon capture, desalination, carbon markets, electric vehicles— the future is saved! Well, almost. The exciting innovations in climate technology grab headlines and spark interest from venture capital. The coverage of these emerging technologies is a boon to the climate tech space and, as evident with the warming climate, the tide raises all boats.

But what about the boring stuff? You know those things that would never be part of Tony Stark or Elon Musk’s media showcase. Fissures exist in our political and economic systems. These once tiny cracks grew over decades and much of the flashy technology ignores them completely. 

These are the archaic government records systems, the inability to efficiently verify mineral and water right ownership, regulatory friction and lack of data to move water where its needed, and a lack of education in the agricultural finance and food & beverage sectors on how to properly incorporate climate risk into their operations. 

Did we create a bunch of solutions that don’t actually address the customer’s problem?

What do I mean by boring?

By boring I don’t mean old technologies or even the technologies themselves. It's about application. It’s the power of blockchain, but that power is mostly viewed by the lens of cryptocurrency and synonymous with Bitcoin. The boring aspects are the ones the general public is unaware of, and in many cases, venture capital and regulators as well. 

I made the case for the necessity of private capital in water. My recent exposure to online climate meetups, fellowships, and schools showed me an over allocation of talent and interest in solar power, carbon capture, and retail investor focused ESG investing. These are important. But they feel crowded, popular, and sort of like the clicks in highschool— insulated. 

Boring means solutions using typical and bleeding edge technologies to solve the largely ignored failures in the current system. It's doing the hard thing: working with a broken system to repair it. Below are potential breaks in our water systems and the boring solutions we should consider to preserve our most precious resource.

Records matter

If you keep a budget, even using an automated application to help you along, you invariably will need to check your records. This is often in the form of some sort of receipt describing what the transaction data, parties, items, and amount paid for. This is a record and it is critical and yet so common that it mostly lurks in our subconscious only surfacing during tax season, for U.S. citizens, and for most of us during a review of our budget.

Important but unnoticed. 

Records are the backbone of our society that is built on ownership. In many countries, owning a thing like a car or real estate comes with a variety of requirements, fees, annual taxes, and legal rights. None of these matter if there is no record of it. 

Debts and credit fuel the modern capitalist society and those are reliant on records too. The use of water and energy in a home is also reliant on records. But they all contain some or all of the basic elements that live in your receipt: data, parties, item(s), place (if relevant), and price.

So why are our water resources treated as second class citizens? 

Water rights are a mess in many jurisdictions adding friction to moving water. Along many rivers, water users have virtual water but lack the real water they will provide for their farm, homes, or industrial use. If we are unsure of how much we actually have, how are we going to fairly distribute it? How are we ever going to build in flexible water management solutions like water markets if we cannot quantify or record the water everyone is starting with and what the result of moving water is? 

Could blockchain save the day?

Yes and no. Blockchain provides a method to record data on a secure ledger providing a more authentic, secure record with much faster times to upload and download then today’s typical title search. Currently, systems like water rights have an incomplete digital database with a messy physical records situation. Often water rights due diligence requires legal or engineering assistance to verify the record; cost prohibitive for many. 

For water, the foundational issue, as described in a recent UC Berkeley Study, Piloting A Water Rights Information System, is getting records that are in non-digital formats, dispersed across county courthouses and government records departments into a database. 

Getting each record scanned with Optical Character Recognition (OCR) is time consuming and expensive. If there were a solution to digitize enough of the record but require less time and expertise, there might be a way to organize the massive backlog of water right related data for the past 100 years or so. 

Starting a process of building what is essentially a water title organization is one way to speed up organization efforts, create a business model, and direct capital to solving the records problem. Like land title companies, having records related services is a viable busniess.

Where there is a business model, there is a higher chance of a funded solution. 

Authenticity matters

Another fundamental element in adapting to climate change that is overlooked is trust.

Trust is often thought of as something built through reputation. While this is true, trust can also be part of a system. For example, when you purchase something online, you trust that you will receive the item described on the website. 

In the water sector, knowing water you wish to buy is coming from a legitimate seller is a similar proposition. However, as noted above, researching and verifying that the water goods sold are legitimate is a time consuming and expensive friction point. 

So the question remains: why?

If the same focus spent on carbon markets and cryptocurrency was harnessed and distributed to verifying water right authenticity, a major hurdle in water markets would be lifted granting the ability to move water to areas that need it the most in a cost-effective manner, most notably during times of drought. 

However regulation and the slow creation of water markets makes a viable business model a challenge. At least a traditional challenge. If you think about challenges in a place like California, you can also see the opportunities that are marching towards a solution to the trickle in water market adoption. 

Groundwater markets like the Environmental Defense Fund’s pilot in Rosedale-Rio Bravo and the work put in by The Nature Conservancy at Fox Canyon provide a change conditions. There is a confluence between the need for water markets as a flexible option both to benefit the environment and to benefit urban and agricultural water users. These conditions are swelling into a movement towards policy making that embraces flexible water management, which means the final and key ingredient is trust.

Trust in a system.

Something blockchain can provide is a third-party verification that the participants in a market system have what they intend to sell and the buyer received what they expected. With water, there is also the need to understand other characteristics about the water like salinity, beneficial purpose, and if there is a restriction on the place of use. There needs to be inquiries to the database or inputs from government agencies that would be sensitive to privacy issues. 

The blockchain technology can handle privacy and anonymous market participants because it is core to the technology. Encryption and keys to unlock data are what can build trust that individual information is protected and only the parts needed for regulatory and transactional purposes are revealed to the appropriate parties. 

Then to build trust, the data needs to be organized, accessible, protected by encryption, and then we can call it day?

Process matters

Though trust through authentication is critical, you have to build and spread a repeatable process that all stakeholders agree on. This is where the human element is essential. Stakeholder meetings, reviews of policies at local, regional, and state government levels are required for a process to take shape. 

This is what NGOs, consultants and universities are great at, and why some of the first attempts to push things like water right records improvements, water markets, climate risk come from those sources. They can only go so far. It is up to governments and the private sector to scale beneficial processes and fill in gaps that may exist.

Partnerships expand the pie.

For example, with blockchain for water markets, there could be a collaboration between climate technology companies, local and state governments, universities, and NGOs to each tackle a piece of the systemic flexible water management problem. NGOs and government could work with stakeholders to fully address their needs, universities could assist with the use of interns and intellectuals to review processes, and climate technology could put all of it to practice. 

There is a better way to confront systemic problems.

Doing what matters

These are fundamental and yet remain boring concepts. Partnerships, communication, records, trust, and process. Still awake?

But it is the outcome that is the exciting part. Like a building demolition and remodel, there are some painful moments and unexpected issues, but these are part of the process of building resilience in our foundations. If we get the foundational, systemic work right, just think how much more capacity there will be to implement the flashy climate technologies of tomorrow!

Instead of leaving you with pure excitement, I hope you think more deeply about other systemic changes that boring technologies or applications of new technologies on the mundane problems we face everyday that will provide a foundation to build and implement the next wave of technologies. 

I am always open to chat about these and other climate change business, policy, and tech topics. Reach out and let’s take action!

We as a collective human species are an innovative group. Surviving by our brains and networks propelled us from the trees to the moon, and shortly Mars. 

We face a seemingly insurmountable list of problems from contagion to climate, economics to freedom. For the agricultural sector, these seem to affect the ability to feed the world.

There is a hopeful light at the end of the proverbial tunnel. Yes, we are an innovative lot, and these challenges are an opportunity to progress, to grow, to do what we have always done.

Here, I lay out some challenges faced by the agricultural industry and the innovation working to mitigate the worst. Data is the key component that will support the next wave of solutions to the climate crisis.

The 21st Century challenges to the agricultural economy

The 21st century will be hard to predict and full of risk. According to the World Economic Forum, extreme weather and the lack of action on climate change are leading concerns for global business. 

In the water-scarce regions of the world, over 90 percent of all water consumed goes to farms:

“That means that in most parts of the world, we cannot alleviate our water shortages if we can’t find ways to use less water on farms,” Richter says. “But, on the flip side, if we can find ways to save just a small percentage of the water used on farms, it will free up a great volume of water that can be used for other purposes, including restoring depleted rivers and lakes.” Brian, The Nature Conservancy. 

According to the Environmental Defense Fund:

“Nearly half of all agricultural loans are held by lenders with at least one-quarter of their portfolio concentrated in farm operating or real estate loans, and many of those lenders also have correlated risks because of concentrations of loans in particular geographies or related agricultural businesses. This contributes to lending sector vulnerability to climate-related disruptions.”

With so much climate pressure on the flow of capital to agriculture, there is a concern that a single domino collapsing, say the California Central Valley’s Powerhouse agricultural producers, will send the rest of the global agricutural market into uncertainty and collapse. 

Disruption of the “normal” cycles

The normal cycles that the agricultural sector is accustomed to are no longer reliable. The U.S. west is seeing the impacts of disruption firsthand. 

The U.S. Bureau of Reclamation released an in-depth report on drought in the west that used Paleohydrology, use of tree rings to determine drought conditions, for the first time. Some highlights from the report were:

• There was an increase in variability of climate in the future.

• There will be less water available in the U.S. west in the future.

• Droughts will be more persistent with severe droughts increasing in intensity. 

• Water will come earlier in the year than what crops are accustomed to, meaning changes in types of crops and yields are likely.

The above applies to surface and groundwater supply, the twin fuels of the agricultural economy. Conflict over water is constant, but it too will increase in frequency and variability. 

Conflict is increasing

Drought is increasing across the U.S. States are continuing or starting new fights over scarce water resources. For example, Texas is suing New Mexico as it deals with 75 percent of the state in drought conditions. Also, the Colorado river system is experiencing record water stress, teeing up future water conflict amongst the compact states vying for their share of a dwindling pie.

Conflict is an economic stressor on its own, and the battles over life-sustaining resources are sure to increase the negative impacts of climate change on the agricultural economies of the world. 

Lack of investment in infrastructure

The state of infrastructure for water and power in the U.S. west needs an upgrade. Declining infrastructure in California’s Central Valley is one example of the lifeline of an agricultural system that is decades overdue for upgrades. Politics had had little to offer for help in this arena.

One of the missing ingredients for water infrastructure is Capital. This is due in part from, “The relative uncertainty and duration of returns on investment (namely, water supply benefits) associated with private investments by water users in water conservation and efficiency infrastructure can further suppress capital flow.” See Groundwater Trading as a Tool for Implementing California’s Sustainable Groundwater Management Act, Environmental Defense Fund.

Due to the lack of information, analysis, and true market systems, the lack of investment will continue unless something creative and bold is done about it. 

Tons of data, difficulty in making it actionable

Having lots of data that is unstructured and disorganized makes taking action a challenge. Additionally, the data you get may not be granular enough to make decisions for your locality. Sometimes small data is king.Getting that data is a challenge and something that needs massive investment from the finance and tech communities. There is hope that this is a solvable problem. It is the political side of the solution that lags.

Regulatory friction

Innovation is ready to build resiliency into the modern agricultural economy, but regulatory friction is still present:

"Although California has a water market, it is bogged down by patchwork regulations that discourage transfers and routinely benefit only well-capitalized users. As a result, water users with fewer resources, such as small farmers, poor communities, and the environment, have suffered disproportionately during the drought. And even well-capitalized users have been hindered by the system’s complexity." - Christina Babbitt, Environmental Defense Fund.

The barrier to introducing innovation to water management will plague the agricultural economy. I wrote about some of the challenges and benefits of innovations like groundwater markets previously. 

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The 21st Century solutions for the agricultural economy

Despite the numerous hurdles, there is hope and momentum stemming from the magnitude of the climate change calamity. The movement towards transparency in data, advancement in machine learning and artificial intelligence is increasing compute power and lowering costs, and the recurring impacts of climate change has invigorated some elements of government to reach out to NGOs and the private sector to secure a future for agriculture. Is this the tipping point towards a solution?

Open data

California is leading in the effort to take massive amounts of public data and provide that in one spot for the public to use. The portal is far from perfect for actionable data, but it’s a healthy start. For water data, the California Water Data Consortium seeks to unify government agencies and their data. The Environmental Defense Fund is a key player in this effort and has set out goals for water data moving forward that include better information, funding for sensors, and the push for implementation of Open ET.

OpenET provides the possibility of a standardized key dataset for understanding water demand in agricultural operations available to anyone. This is a glimpse into the future value of open data projects and how they assist policy makers, tech companies, agricultural businesses, and the communities interconnected with the agricultural economy. 

Software in the ag space

There are many companies vying for solutions to agriculture economy. However, focusing on the real, core problems that agricultural stakeholder are facing will differentiate successful and struggling companies in the agricultural software space.

Some of the challenges for companies building digital solutions in agriculture is the long sales cycles with agricultural finance community, building trust with the farmers, and keeping costs reasonable for the farmers so that they can feel good about their cost to benefit analysis. 

Without financial help in the form of incentives to mitigate climate risk from deep pockets, it will continue to be a challenge to scale innovation in the space. 

Working together

An ecosystem of tech, government, finance, and NGOs is beginning to form in California. The typical lack of capital flowing into the climate change problem space is beginning to change as pressure from investors, constituents, and markets are pressing politicians to do something about it. 

Capital from the government has traditionally come slowly and with more strings than Pinocchio would care to deal with. However, NGOs and some government agencies are expert at handling that. Where these string ninjas come up short is rapid experimentation, innovation, and growth. Enter the scrappy startups, possibly backed by venture capitalists or arms of big tech. 

The pairing of string ninjas and scrappy startups is one of the most interesting innovations of the 21st century and sets the scene for some real change. 

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Why now is the time to innovate faster

With a climate crisis as our backdrop, the string ninjas, and scrappy startups the players, the question is why is now the time to innovate faster? Cost reductions, compute power increases, and political momentum.

Satellite data is getting cheaper

One of the most exciting developments in technology for land and water nerds like myself has been satellites. Since the push for cheaper and faster iterations for space thanks to Elon Musk, the ability to utilize satellite data for scrappy startups is getting easier. For example, there are now companies like Albedo that provide a per task payment model similar to calling an API or having your own satellite to gather the data your need! 

As companies make gathering satellite data cheaper, the cleaning and translation of that data will also become a lucrative business. There is room for innovation in turning satellite data into actionable data for use by water managers and agricultural operations to determine groundwater levels, soil, and plant moisture, and turn that into crop yield predictions, water efficiency studies, and risk analytics. Models for a state-wide or country-wide scale will need help from the string ninjas and governments to properly scale and imbed in decision making. But how will companies that translate data for use by industries and individuals manage the amount and complexity of that data?

Machine learning is cheap, in the cloud, and easily deployed

The ability to launch a machine learning first company is no longer a cost prohibitive endeavor. In his book The AI First Company, Ash Fontana lays out the steps:

“The steps to building a data learning effect with intelligent machines are (1) capturing a critical mass of data, (2) developing capabilities to process that data into information, and (3) feeding that information into a computer that runs calculations over data to learn something new.”

Those steps used to be solely in the realm of IBM and the Pentagon. More recently big tech, like Amazon and Google, moved the machine learning and artificial intelligence tools to the masses via cloud infrastructure. Now the scrappy startups can run thousands of experiments, feeding cleaned data into the cloud computer infrastructure, iteration, and a lightning pace. 

With all this in the cloud, companies can pull talent from across the world, collaborate with government and academic institutions anywhere, and do so for a fraction of the cost. The pace is fast, but it still may be stalled by the laggards in power. 

The political atmosphere is ripe for change

Critical to continued innovation in the climate space is compatible regulation. I talked about the need for public and private partnerships in a previous article as it relates to groundwater markets in California. More broadly, reliable, accessible, and granular data can be provided as a Public good. 

There should be a public database that publishes climate data that is viewable using a GIS based map. Additionally, there should be open and free access to APIs that allow software companies to use the data in experimental, iterative ways such as machine learning and artificial intelligence applications. 

Unfortunately, we are bogged down by solid data, licensing issues, and a lack of a unified way to view and analyze data that leads to actionable steps for a variety of industries, including agricultural business. 

An open data portal that respects individual privacy but makes the bulk of data available and cheaply consumable will align with the innovation path set by the scrappy startups and big tech. The string ninjas and local agricultural communities can use government sponsored forums to provide valuable input into the innovation flywheel. We are all the users in this ecosystem challenged by scarcity and pollution, and we need channels and political representatives that get technology and science enough to support innovation.

This will take education from all stakeholders to get government to understand the “How” in tackling climate change. We get that there is a climate crisis, it’s time to clear the hurdles to solving it. 

Groundwater is an interesting concept from both a legal and economic perspective. Scientifically, it is an extension of the water cycle. However, groundwater has long been the safety net of major agricultural economies. With less visibility than surface water, it went largely ignored for decades as the scarce and valuable resource that it is. 

Ignorance is not bliss. In California, groundwater pumping went largely unregulated until 2020, when the landmark Sustainable Groundwater Management Act (SGMA) to effect for the critically overdrafted groundwater basins. The Overdrafted basins were designated as such due to decades of over pumping resulting in high risks of aquifer collapse, subsidence, and permanent damage to a vital resource. 

While it is critical that California take groundwater sustainably seriously, SGMA is largely a supply side management club that doesn’t focus on the remaining demand from large municipalities like Los Angelas, or the 500 billion dollar ag industry in the Central Valley. Should these important pieces of California, and the United States, economy shrink their economic contributions because they are stuck without water? 

There is a solution: groundwater markets. Groundwater markets are in the category of flexible water management options, which allow for water managers and water users to adapt to changes in the environment and regulatory arena without suffering the brunt of extreme events like drought, or policy that lacks data and understanding of the implications of strict rules around water transfers. By allowing for adaptation, governments can let innovation from private, non-profit, and even their own agencies surface to implementation. 

What is a groundwater market?

A groundwater market is like many markets out there that you interact everyday. Imagine a Facebook Marketplace or Craigslist landing page. People come to these sites as either buyers or sellers. Some need something, others need to get rid of something. Simply a market provides a mechanism for exchange. 

Groundwater markets are not too different. They are a place where those with water are looking to sell that water to those that need it. What makes groundwater markets complex and different, is that the groundwater is difficult to perceive until extracted and the extraction of groundwater has a financial and environmental cost. Add a patchwork of rules and ambiguities, and you have market, but one with high friction. 

To facilitate transactions with a resource that is difficult tor perceive and move, most markets operate with the concept of groundwater credits. Credits allow someone to pump more from their well, but the movement of groundwater does not actually occur. The groundwater credits are then priced based on the market for them. A similar program for air pollution, cap and trade, utilizes a similar concept of credits, pricing, and trading of credits. 

Why flexible water management tools like groundwater markets are necessary.

Water management is a precarious endeavor. The weather is a challenge to predict, specially now due to climate change. There are regulations and financial constraints that must be balanced with the needs of the water users. All of this rigidity of it all begs for options that are flexible and efficient. 

Constrained water supply is the new normal in California.

Whether you call it a mega-drought or extended drought, there is enough evidence that something is wrong. Snowpack in the Sierra Nevadas is in jeopardy due to less snow and too much snowmelt, too early in the year. Timing and quantity disruption is causing devastating impacts to California’a agricultural economy and the communities it supports. 

Unfortunately, this not a one-time event or even a prolonged natural disaster. If that were true, California agriculture would not need to change much. Alas, climate change is here to stay and behavioral change is critical to building resiliency into agriculture. 

A behavioral change is in order: status quo rigidity in water management is outdated.

Friction in business is something to be avoided. It is expensive and time consuming. Creating an effective system to manage water is no different. The more friction created by inefficient regulations, the more challenging it is to introduce innovation to the water space. Current water regulation makes moving water cumbersome. 

Currently, if you want to transfer water from one part of the state to another, you need to follow a rigid transfer process. There are permanent and temporary transfers depending on the circumstances. Permanent transfers are much more difficult to achieve. At a basic level, there is a requirement for transfers to refrain from harming other legal water users along the various conveyance systems that may be needed to deliver the water. For an overview of water transfers, check out the California Department of Water Resources website. For a deeper dive into water transfers, you can review the State Water Resources Control Board’s Water Transfer Guide.

You can imagine how the level of complication increases the further water is transferred. For example, a transfer from one farmer to another in the same county may be easier due to less legal water users impacted by the transfer. However, often there is the need for large amounts of water from the wetter Northern California. This means there are more water users impacted by the movement of that water. To make things more challenging, there are environmental requirements in the Sacramento Delta that add further complication to moving water south of the Delta. 

Practically, agricultural operations in the Central Valley that wish to purchase water from north of the Delta may not be able to actually use that water for a year or more. That is the very definition of friction in a market. This approach is outdated and untenable in the face of an unpredictable climate future.

Climate change is unpredictable.

For decades there has been a general understanding that water arrives in March and April due to rain and snowmelt, and then the agricultural community can predict water availability for the remainder of the growing season. What we have seen in the last decade is the disruption of that understanding. Water is melting and flowing in January and February, which is too early for the crops to fully use that water. 

Can we simply adjust to the new pattern? It’s unknown. We are unsure if there is a new pattern or if there is simply a pattern of disruption. We do now there are more frequent extreme weather events and that agriculture in California has yet to catch up.

The technology is here, policy needs to catch up to enable widespread adoption of groundwater markets.

There is a sense of doom and gloom when you look at climate change trends and the long-term existential threats posed to the world economy. However, innovation is the spark of hope for a better, resilient future. It is in water markets that we can see innovation, political hurdles, and the path forward. 

Databases, sensors, and GIS.

The innovation I work in every day is a mix of boring technologies with outsized impacts, and the promise of machine learning and artificial intelligence to save the day. 

First the boring. Utilizing Geographic Informations Systems (GIS) to understand location based data from a mix of sensors and human reporting that is then organized and stored in a database is a key foundational component to facilitating groundwater markets. These are not new technologies but they are newly matured enough to make it cost effective to implement.

Now the unproven but exciting. Machine learning allows computers to learn from large amounts of human cleaned and fed data. Its is not perfect, but it does allow for rapid experimentation due to the speed of computations. Beyond machine learning is artificial intelligence (AI). AI allows computers to learn and make decisions. Imagine an entire network of AI powered water managers. Scary and intriguing at the same time. 

Due to the maturity of the boring technology, data collection is becoming cheaper and making connections between data points is beginning to come down in cost as well. Tech giants Google and Amazon allow for running machine learning tasks in their cloud infrastructure at a fraction of the cost of past methods of using dedicated server time on an advanced server. As machine learning computational tasks become cheaper, the experiments will increase and innovation will continue to increase.

For groundwater markets, that means realtime prices, buying and selling, and utilization of blockchain technology to secure these important and high value transactions. 

There is hope for water in the West from a technical perspective. Now if only those pesky humans would listen.

Share

Fears of “Buy and Dry” ignore the capacity to build rules into groundwater market trading.

The fear of multiple bad actors draining communities is real. Wall Street is now in the water business and that is freaking people out. County governments throughout California have ordinances preventing surface water transfers outside of county lines and also restrictions on intra-county transfers. Now that Groundwater Sustainability Agencies are formed in California, there is potential for restrictions on groundwater sharing. The madness must stop.

In any market, there are guardrails to keep the market participants safe. In the context of groundwater markets, participants include all stakeholders including disadvantaged communities, aquatic species and plants, land dwelling animals and their habitat. These participants must and will be safe with a proper water market policy in place. 

These guardrails are most effective when they are as simple as practical and understood by all market participants. 

Data and Transparency are key to effective groundwater market policy.

So we arrive to the groundwater market evolution with a pile of data. Data and the technology to make it useful to essential, but, and this is equally important, is transparency into the data and mechanisms that power the groundwater market. Often technologies become a “black box” and market participants are unable to trust in the system. Without trust, a market is doomed. 

This is why private-public partnerships are key in the development and proliferation of water markets. Water markets need private sector technical innovation and growth engines, but groundwater markets need the policy makers and stakeholders to support the market. Without support, the tech will gather dust. 

Transparency will lead to trust, and trust will lead to effective markets that provide flexible water management in an unpredictable climate future. 

California can lead the march towards groundwater market adoption in the west.

Hollywood, Silicon Valley, and Haight Street are some of the innovations and cultural revolutions unique to California. That same know-how has to be part of the solution to the new normal of dry conditions broken up by extreme flooding. 

California’s groundwater markets.

California has groundwater markets today. For example, The Nature Conservancy worked in Southern California on the Fox Canyon Groundwater Market. The groundwater market is the first created under California’s Sustainable Groundwater Management Act (SGMA). If it is successful in providing a solution to the struggling groundwater basin, it could translate into greater adoption of groundwater markets to reach SGMA’s requirement that the local Groundwater Sustainability Agency bring the basin into sustainability in 20 years. 

However, many of the surface and groundwater markets out there rely in proprietary technology solutions, which can hinder their scalability. Fortunately, there are groups out there that recognize this and are working towards a solution. 

A scalable solution is just around the corner. 

The Environmental Defense Fund worked with the Rosedale-Rio Bravo Water Storage District to pilot an open source groundwater market. If successful, this project could be the path to groundwater market proliferation in California. With the right mix of boring and cutting edge technology, the open source tech will provide a cost effective way to bring groundwater basins into sustainable operations. 

Open source is a great step forward, but there will need to be government funding to back the adoption and communication around new markets. We discussed the need for stadholder trust, which means the markets will need to be technically solid, secure, and accompanied by stakeholder support. It is up to both private a public sectors to make this work. Climate change is not going away. 

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We drink, wash, and use water everyday, but do you ever think about all that it takes and has taken to get water to you? From our beginning as a society to the respect for water we lost along the way, this article covers six high level things you should know about your water.

Human influence over water started it all

The first governments in human history were organized around the allocation of water resources and agricultural land. Water ways provided key transport options and lead to exploration of the Americas by Europeans and more fantastically the settlement of islands by Polynesians. Water as a facilitator of industrial expansion occurred during the industrial revolution as the steam engine sped up progress across the globe. Great agricultural regions and residential developments sprang up in the western U.S. in the last century and continue to create new ways to transport and utilize water to continue development.

All of this human involvement in shaping water lead to rules, markets, and challenges we face today. This article will cover these developments at a high level to give a basic understanding of how the water you interact with everyday is managed and protected.

Moving water

One example of the importance of moving water is the development of California agriculture. By the 1800s, California was booming with new settlers. The population pressures and the efforts of early land hungry capitalists displaced the original stewards of the environment, the California Indians. In addition to displacing the native stewards, the early Californians began changing how water was moved.

Two critical industries were responsible for this change: agriculture and mining. Agriculture would outlast mining and create the need for more water to flow to California’s Central Valley. The Central Valley Project and the State Water Project were huge undertakings that linked dams and canals from Northern California to Central and Southern California. The agricultural industry blossomed and became one of the most valuable in the world.

The mining industry made an early impact by using large amounts of water to blast away rock via placer mining. This reduced water quality and caused major flooding that wiped out people’s homes and valuable agricultural land in the Sacramento Delta. The sediment runoff from the mining operations was one of the first environmental hazards addressed by the Californian government early in the state’s being.

As California became more prosperous, urban population pressures like those in Los Angeles, created increased demand for water in an otherwise dry region. Water continues to move vast distances to meet human needs.

The cost of moving this water artificially has finally caught up to California. Droughts and over use of the groundwater aquifers has begun to damage the infrastructure that is the lifeblood of the Central Valley. Urban sprawl is adding to water stress in most of California and creating new hazards for flora and fauna, as well as the agricultural economics of the region.

As you can see, moving water can create great abundance but also great stress on the economic and environmental ecosystems.

Claiming water

Another important aspect of water is the ability for a person or entity to claim the right to use the water. Water is a precious resource, but also a scarce resource. Freshwater for drinking, agricultural, and industrial use must be managed to meet everyones needs, including the environment.

Many states in the U.S. follow the riparian or the allocation doctrines, or a hybrid of both. Riparian rights are from English common law and allow a land owner to use water that is adjacent to their property. Appropriative rights are claims for water based on the first person to claim that water and use it for a beneficial purpose. Appropriative rights grew out of water stressed states in the U.S. west and allow water to be moved from one source location and used in a different location. The fact that an appropriative water right holder can pull water from a river but not need to own adjacent property opens up a greater amount of water users and expansion of water intensive activities.

Many states and countries created a system to track and approve of appropriative rights to reduce harm to the right holders and the ecosystem. This is often referred to as “paper water rights” because you have a permit that says you can use a certain amount for a certain purpose at a certain time of the year. Often, states over allocate water rights so the right a person has on paper may not equal what they can actually get for their beneficial use.

Water rights uses the legal system to enforce who has a right to water. Water rights are often in dispute and it can take decades to resolve major disputes. Without the legal system’s case law on water rights, it would be difficult to ensure the users of a water system are respecting the public good and the rules for using their water. Though the water right legal framework can be expensive and time consuming, it is necessary to protect an individual’s right to use the water and protect the ecosystem from overconsumption.

Sharing water

Sharing water is beneficial to all parties involved until there is a major shortage of water. Curtailment is the reduction of water provided to water right holders. When there is not enough for everyone, constraints may cause economic harm to regions like the Central Valley in California.

‎Water Values Podcast: The Birth of Western Water Market with Founder Kristina Ribellia on Apple Podcasts

To mitigate that risk, some are able to enter contracts to move water from one area to another. The water markets can provide flexibility for government and private water managers when times are tough. The idea is that one person may gain more value in selling or leasing the water they have in a given year than to use that water. In many jurisdictions, if you have more water than you need, you could see a reduction in your water right allocation. By trading your water, you may be able to preserve that amount and make sure someone who will actually use it is able to access it.

It seems to make sense in the capitalistic U.S. society that this would be a welcomed option. However, there are many rules and restrictions on water trading due to fears of someone buying all the water in one area and moving to another, also known as “buy and dry.” Because of these fears, many water markers lack efficiency and water may not arrive when needed or the transaction cost becomes too high due to government requirements.

As climate change disrupts past water and agricultural patterns, the flexibility offered by water makers may become too attractive to pass up. In a previous post, I wrote about what private capital could do for the sharing and movement of water. This is moment for Both private and government stakeholders to come up with a solution. There is hope for markets as the Environmental Defense Fund and the Nature Conservancy continue to create and operate small water markets in California.

Protecting water

As water is claimed, moved, and sold there is an importance guardrail that must be in place: water protection. As explained through out this article, fresh water is precious and scarce. It is home to a variety of plant and animal species that we all rely on. It is necessary to grow food, hydrate our bodies, and clean ourselves. At times, water in one area of a country or even a city is polluted versus another, often more affluent and white, area. Protection and equity go hand in hand.

Recently, water has earned legal rights. In New Zealand a river was granted legal standing to assert its rights. As we covered earlier on the importance of legal rights to water, it is interesting to think of the source or body of water as a legal stakeholder itself. While legal standing for natural resources may be a long time away from common adoption, environmental regulations are myriad to create protections.

Is it enough? There are folks on both sides of the argument that have valid points on whether there is too much or too little regulation protecting water. However, there is more to protecting water than regulation. I wrote about the use of financial regulation to get the banking sector to pay more attention to environmental risks could spur private adoption and innovation in this space. Even better, is the alignment of business goals with sustainable use of water resources. Viewing water as natural capital that must be accounted for could be one way to align those goals.

Respecting water

Legal rights, economics, management, and protection all boil down to respect for water. Several Native American tribes view water as sacred. A spiritual connection much like Catholics revere the Vatican and Muslims do to Mecca. If we view water with the same respect as one with a deep faith in its power and capacity to sustain life, policy and practice would change at a much more rapid pace.

The next time you eat vegetables or drink a glass of water, think about all that went into its production and distribution. Show a little respect for your consumption and take action, no matter how small, to educate others about the water we all share.

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What you should know about the water you rely on every day was originally published in Blake on Climate Change on Medium, where people are continuing the conversation by highlighting and responding to this story.

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