By Rhys Owen
Senior Research Editor/Editor-in-chief at BlueTech Research

A new US Presidential administration always marks a time for change, with consequences for the water sector as well as the wider economy. The 2020 election feels like a truly historical turning point; however, the immediate consequences for water may not be as radical as some imagine. As always, there will be a mix of upsides, downsides, and continuity. Here we briefly discuss some of the positives and negatives for water, starting with the negatives.

What could go wrong?

Anyone expecting an immediate end to the political dysfunction and partisan gridlock at the top of US politics is likely to be disappointed. With a single party controlling all three branches of government, some progress can be expected, but the Senate is a 50-50 split between the Democrats and Republicans. Historically, such splits have not been conducive to driving forward a government’s agenda, as the ruling party struggles to keep an often diverse coalition onside. With the passage of legislation vulnerable to just one or two individuals voting against party lines, the opportunity for lobbying and special interests from within the water and chemical industries and regulatory agencies to muddy the waters may actually be increased.

This precarious balance could affect a whole range of issues. One being the increasing emphasis on emerging contaminants, particularly PFAS legislation. As BlueTech discussed in our PFAS Regulation Update article in October, a key provision of many of the bills coming before Congress has been to enact the Comprehensive Environmental Response, Compensation, and Liability Act, otherwise known as CERCLA or Superfund. The law provides a Federal “Superfund” to clean up pollutants, but crucially also gives the EPA power to recover costs from “financially viable individuals and companies,” including polluters. In August 2020, an alliance of water associations including AWWA wrote to the House and Senate armed services committees saying the Superfund designation could “create liability for communities that encounter PFAS in their water treatment activities.”

The over-riding issue is one of liability for costs. Short chain PFAS in particular are thought to require capital-intensive treatment technologies such as reverse osmosis and nanofiltration. With real concern over utilities being able to find the funding to afford remediation, treatment and removal costs, taking broad-based, comprehensive action on PFAS will not be an easy ride. Look out for an update to BlueTech’s BluePrint on PFAS in the next few weeks.

One sub-sector of the water industry which will be nervously eyeing the new administration’s priorities will be suppliers of technologies and services to shale oil and gas fields to deal with produced water. Boosting the hydrocarbon economy has been a hallmark of the Trump administration, with new federal oil and gas lease sales opened up on the US outer continental shelf in 2018, and in the Arctic National Wildlife Refuge (ANWR) at the start of 2021.

The sector is already under pressure from reduced oil and gas prices due to the Covid-19 pandemic, as well as strengthening price competition from renewables. While a dramatic change is not in prospect, the new government can be expected to further favour renewables over fossil fuels, accelerating an already existing trend. Companies such as Aquafortus (which in 2018 signed a $40M licensing agreement with PetroH20 for its innovative ABX ZLD solution) may find it increasingly challenging to repeat such feats.

Another macro trend to watch will be interest rates. As a different economic strategy with increased investment at its centre kicks in, and a hoped-for post-covid recovery takes off, will interest rates rise? For the last few years, historically low rates have driven a venture capital bonanza within water technology. We can expect this to cool off in the coming years, with new water and wastewater technology systems potentially finding investment a little harder to come by than over the past decade.

The good news

Those following the U.S. election will know that the Green New Deal (GND) is at the heart of the Democrat platform. Biden’s Build Back Better Plan, modeled around the GND, proposes $1.7 trillion in federal investment over the next 10 years, and is expected to leverage an additional $5 trillion in private sector, state, and local investment.

Notwithstanding the challenges outlined above, there is a good chance that much of this funding will find its way to the water sector. Part of the 10-year mobilization that the GND calls for is focused on retrofitting and upgrading buildings to achieve maximum energy and water efficiency – this will be a focus of BlueTech’s upcoming Insight Report on Commercial Buildings Water Management. Funding is likely to be made available to upgrade & retrofit residential and commercial buildings to be more resilient to the environmental challenges facing the 21st century; water scarcity being among the most pressing.

More broadly, there is a staggering infrastructure investment deficit within water – the United States Environmental Protection Agency (USEPA) estimates that approximately $473 billion in drinking water infrastructure investment will be needed over the next 20 years; including $312 billion in transmission and distribution systems alone. For wastewater, the estimate is $271 billion. Not all of this will be forthcoming, but we can expect to see some of the gap plugged. In the meantime, BlueTech sees an overarching trend towards decentralised systems to compensate for the difficulties within infrastructure.

The government is not the only source of investment; there are a great many investment vehicles, bonds and private partnership schemes which have successfully kick-started water projects. An administration with a greater focus on environmental sustainability can presumably be expected to support and encourage such efforts. Either way, BlueTech expects an intensifying of efforts by corporates to invest in protecting their access to water, via investing in water stewardship. Some examples include Intel’s investment in lake rehabilitation in Bengaluru, and Amazon’s proposals for Environmental Impact Bonds and Performance Based Payments to fund nature-based water management schemes (see BlueTech’s article on Blue Green Infrastructure in the USA, available on the Intelligence Platform).

A re-invigorated EPA may well move faster on regulating contaminants than has been the case in the last five years. A very recent example is 1,4 Dioxane, a recognised carcinogen present in water bodies across the US. The EPA recently came in for heavy criticism when it released its Final Risk Evaluation for 1,4 Dioxane on the evening of December 31, 2020. Environmental groups, state attorneys general, and the chemical industry all criticised the agency for not evaluating the risks from exposure to the chemical via drinking water, instead focussing on the risks from recreational activities, such as swimming in water contaminated with 1,4-dioxane. The EPA acknowledges that people may be exposed to 1,4-dioxane via drinking water, as well as from ambient air and soil, but the agency argues that such exposures fall under the jurisdiction of other environmental statutes, not the Toxic Substances Control Act (TSCA). The 1,4-dioxane assessment is one of the first 10 high-priority chemical assessments the EPA conducted under 2016 revisions to TSCA .

Regardless of the arguments around such regulation, it is a well-established phenomenon that greater regulation means greater investment in spending on water and wastewater treatment solutions, which will be welcomed by technology providers, consulting engineers and investors, and perhaps less so by financially-struggling utilities.

It remains to be seen whether any of these predictions become reality. Sudden, sharp changes are unlikely in any event, and the water sector as a whole is a giant which will take years to turn around onto a new course. What we can say is that the wind has changed.