Toxic Water: Pollution and Scarcity Flow Together

environmental Strategist, between the lines: In case you missed this article in the recent issue of Risk and Insurance I wanted to make sure you had a chance to review this. Any businesses that can impact water are going to be under more scrutiny, especially agricultural accounts.

Fracking, pharma, cow dung–whatever the pollution source, there’s so little fresh water around, sullying it makes even less sense.

By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

Scenario: Hurricane Lucy was a wet one. When the Category-2 storm feinted toward South Florida but then raced northward toward North Carolina’s coast, residents braced for the high winds and storm surge. But it was the rainfall that wreaked havoc. Local tributaries burst their banks. Manure lagoons burst too.

Yes, sir, massive manure lagoons, some as large as multiple football fields, all full of liquid excrement from nearby animal farms, couldn’t withstand inch after inch of rainfall. Their walls burst, spilling the dung and all of its nasty compounds and pathogens with it. Nitrates, E. coli, Cryptosporidium, fecal coliform all escape, poison the streams and lakes, disperse into the water table.

The scale of the release is sickening in size, the stench needless to say overpowering. Some of the livestock farms in the area contain hundreds of thousands of animals, producing the equivalent of a small city’s worth of sludge, millions of gallons.

The dairy and hog farms in the area with these manure lagoons are similar to farms across the country. In the summer, the manure is a valuable fertilizer for them. In the winter, however, the manure needs to be stored. The lagoons provide a convenient and, it’s hoped, secure place to save the manure for future use.

The hurricane proved the lagoons not secure enough, however.

The effects of the massive spills became apparent in the streams and in the homes of nearby residents. Huge fish kills floated to the surface of local waterways. It was estimated that more than 10 million fish died. Hundreds of thousands of acres of coastal wetlands and waterways were closed to commercial fishing.

Then people began showing up at the emergency rooms. Cryptosporidium found its way into drinking water. It’s estimated that 142 people died from infection, untold tens of thousands got sick.

Employers in the area, already overcoming business interruption and property losses from the hurricane, now found themselves short-staffed and in the hole for millions of dollars in lost productivity, absences and short-term disability.

The U.S. Environmental Protection Agency swooped in to investigate and issue fines. State and local authorities were not to be outdone. A mass tort suit was filed by victims and their families against the agribusinesses that operated the farms, just another in a long string of suits in courts across the country against livestock farms.

Analysis: The above scenario is fictional, yet it does not stray too far from historical events. There are plenty of examples from the past of these lagoons blowing up. In 1999, Hurricane Floyd hit North Carolina and caused several to burst. In another instance in the state in 1995–unrelated to a hurricane, because these sewage holding tanks can leak or collapse without a major precipitating event–an eight-acre hog-waste lagoon spilled 25 million gallons of sewage into a nearby river, killing an estimated 10 million fish and shutting down 364,000 acres of wetlands to shell fishing.

Perhaps the worst case from a human health standpoint occurred in 1993 in Milwaukee. The event didn’t necessarily stem from a lagoon spill, but from dairy-cow manure nonetheless. Cryptosporidium from the manure got into the city’s drinking water. More than 100 people died and 400,000 citizens were sickened.

We can fill these pages with stories about livestock farms. The problem is serious enough that a search on the topic brings up 3,520 results on the EPA website, that the Natural Resources Defense Council devotes a page on its site to it (where these aforementioned examples can be found). The issue has insurance underwriters’ attention too.

“I think livestock is the biggest problem … forget fracking,” said Joe Boren, CEO of Ironshore’s environmental operation and director of strategic relationships.

About fracking, the nickname for hydraulic fracturing, the controversial method of extracting natural gas from shale rock formations, Boren said it is a “controllable situation.” You know where the energy companies are drilling, can find out what chemicals are in their “fracking fluids,” and can test. On the other hand, how do you control where thousands of cows or pigs go No. 1 and No. 2? Even if you’re collecting it into lagoons, how do you stop much of it from seeping into the ground and meandering into water supplies? The scale of the problem, again, is sickening. In California, for instance, the NRDC estimates that more than 100,000 square miles of groundwater is polluted by nitrates from livestock agribusinesses.

“I think that’s the next area,” Boren warned.

It’s not to downplay fracking. When it comes to water pollution, fracking is probably top of mind for most people, many of whom have seen the images of flaming tap water from the documentary on the topic called “Gasland.”

Boren said that Ironshore currently insures one operator and is talking to several others. Others in the insurance industry might not be as comfortable yet with fracking.

“The challenge for underwriters regarding hydraulic fracking is how to properly analyze the risk presented, when results and data regarding chemicals used in these operations won’t be readily available until as late as 2014,” said William Hazelton, executive vice president of ACE Environmental Risk.

Or let’s not downplay the issue of pharmaceuticals seeping into urban drinking supplies, made famous by the 2008 Associated Press investigation into the issue.

Whatever the cause, water pollution is everywhere. About 40 percent of rivers, perhaps 45 percent of lakes, are polluted and unusable, Boren said.

The fallout from a spill should be a major concern for businesses. A de facto industry of environmental nonprofits and citizens’ groups hound polluters with lawsuits (which Boren, who started his professional career as a state environmental regulator, credits for cleaning up waterways).

What’s more, the EPA has made clean, safe drinking water it’s No. 1 goal in 2011 and is allocating nearly 50 percent of its budget to it, said Steve Piatkowski, vice president of engineering at ACE Environmental Risk. It has plans to add 30 new compounds to its list of 90 already regulated under the Safe Drinking Water Act.

“At the end of the day, we’re just telling our clients that the U.S. EPA budget is the biggest it’s ever been … and there’s definitely an increased eye on enforcement,” Hazelton said.

Of course, corporations have their own self-interests to consider, besides fines and lawsuits. Particularly if they operate in the U.S. Southwest or Southeast, the Middle East or northern China, there’s little good water to go around to begin with, so why pollute that? Texas might have its share of mammoth cattle ranches with millions of unconstipated animals, but 94 percent of the state is also currently in a drought. In other words, water pollution and water scarcity go hand in hand.

Proper water management must address both problems. To prevent pollution, the key is “impeccable” monitoring, Boren said. U.S. industry is used to the National Pollution Discharge Elimination System, whereby firms must delineate ways they’ll clean discharges to get government permits to do so.

U.S. companies are also becoming more adept at managing scarcity, said Linda Hwang, manager of environmental research and development at Business for Social Responsibility, a San Francisco-based organization that works with businesses on sustainability issues. Firms are focusing on tracking water use, prioritizing where to make a difference, and finding ways to reduce or reuse water in their operations.

“What has changed, more and more companies realize they need to build this into their overall risk strategy,” she said.

Of course, to transfer the risk of water pollution-related liabilities, organizations can purchase standard environmental insurance policies. Contractors involved in fracking, for instance, are shopping for contractors’ environmental liability policies, Hazelton said.

Old-fashioned insurance, however, might not be available to lessen the impact of water scarcity. Weather derivatives are. Brian O’Hearne, CEO of eWeatherRisk, related how energy firms and agribusinesses are considering financial hedges to protect against water levels in nearby streams and lakes.

For instance, energy plants need water for cooling. Without enough, they cannot operate at peak capacity and have to purchase power at higher prices elsewhere. A solution could entail understanding the correlation between rainfall and nearby water levels and then building a financial product based on that relationship that would pay out when levels get too low.

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