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To paraphrase a famous song:

Risk is all around us. Sometimes it means that a brick lands on our head and we die. Other times it means that our rivers run dry.

Rivers provide the perfect analogy to explain upstream risks and how those can have a significant impact on energy security and even national security 🌊

Rivers will never look the same again. I promise.

If you ever had the feeling that simplistic explanations don’t capture what’s going on in the world then you are spot on. Cause-and-effect relationships rarely do the trick.

A much better approach is to realize that our lives are very complex. The science to describe such phenomena is called Systems Thinking.

That’s the reason why it’s near impossible to reduce our world down to a simplistic (IF x THEN y) statement.

To understand systems, we must understand two concepts: stocks and flows.

To illustrate these two ideas we will look at a bathtub 🛀

Microorganisms are systems. They have a stock of metabolic energy that has an inflow (feedstock) and an outflow (product).

Our governments are systems. They have a stock of political energy that has an inflow (public opinion) and an outflow (policies).

Our economies are systems. We have a stock of economic energy that has an inflow (energy sources) and an outflow (productivity).

Systems are a helpful frame to observe and describe the world around us.

Earlier this year, I wrote an introduction to systems thinking. One of the key takeaways was that systems are not linear (cause-and-effect) but circular (balancing vs. reinforcing loops).

Inflows and outflows carry elements in and out of a system - these elements travel in a stream. Depending on where in that stream you are there is an upstream direction and a downstream direction.

We came here to talk about risk. Since the stick figure in my illustration is looking upstream and not downstream we’ll have to address upstream risks in this essay.

Upstream risk is when armies lose their supply lines.

Upstream risk is when people lose access to electricity.

Upstream risk is when you lose access to fresh drinking water.

The smallest common denominator is that something goes wrong upstream.

Water is the foundation of early civilizations.

If you look back in history, settlements were usually established close to a source of fresh water. People didn’t care about fancy amenities or access to public transportation. What they really cared about was having a steady stream of drinking water.

Fast forward and our modern lives still revolve around streams of water. Depending on how we look at a river, it can be a system in its own right or it can be a flow within a larger system.

I will focus on rivers as a flow since in many parts of the world this flow is currently interrupted due to a historical drought.

The main question that needs to be answered is “what happens when there’s a problem further upstream?”

In the context of drought, rivers run dry. Less water arriving downstream means bad news for all sorts of areas. I’ll give three examples:

For centuries, the water level of rivers has been a leading indicator of farming yields. In central Europe, there is even a tradition of putting “hunger stones” as markers for caution. If these hydrological landmarks were visible it meant that tough times were ahead.

So what’s going on right now?

This year, low water levels in France are causing 30%+ of all maize crops to fail. Fresh water from rivers is used for irrigation of crops. This is just the beginning.

Another example from recent history is the water shortage in the Euphrates-Tigris basin. Most of you are aware of the dire humanitarian conditions in Syria. It is a country in a deep economic crisis. It is a country in civil war. But it hasn’t always been that way.

Besides climate change, there were major infrastructure projects in Turkey that constrained the flow of water. Syria’s problem was that Turkey was building these dams further upstream. This site has a good summary of events.

The critical takeaway here is that whatever happens upstream can have an impact on food security downstream. Regardless if it is driven by other governments like in the case of Syria or by climate change like in the case of France.

Less water means less food.

Secondly, much of our heavy industry depend on rivers to ship commodities and product.

The river Rhine has been historically dry this year and it affected supply chains across Europe.

The global economy still hasn’t recovered from Covid-19 and now supply chains are further impacted by climate change. It might be time to think of contingency plans and alternative routes of transport.

Alright, so this one is spooky and I honestly didn’t think of this before.

Water is essential for operating nuclear power plants. Long story short: nuclear power plants use up to 4 billion liters of water a day 🤯 This is why most commercial nuclear power plants are built next to rivers.

Do you know who has a lot of nuclear reactors? France 🇫🇷

France has been a poster child of European energy wonks. Their national energy mix is unique in that it generates roughly 36% of its total energy from nuclear power. Typically, nuclear power is considered a low-carbon energy source and one that can run non-stop. Until it can’t

The problem this year is that the longest river in France just ran dry. Literally. A dry river means no water for nuclear power production.

This shortage in power generation means Europe has less energy supply. But people still have to turn their lights on and companies want to be open for business. As a result, governments are scrambling to find a substitute for the missing energy supply and the markets are taking full advantage of this. Low supply and high demand mean prices go to the moon 🚀

France is part of a larger European energy market where energy is traded. Not only is France’s nuclear output missing but we are also experiencing a supply shortage caused by Russia’s invasion of Ukraine. With all of this, we didn’t even get into hydro (think of dams). Energy supply is always an upstream risk factor.

Bottom line: Europe is entering an energy supply crisis of gigantic proportions and we are getting a full-priced case study on what that means in concrete terms.

I have an extra one for you. Now this one is technically not an example of rivers running dry. It’s the opposite.

Just look at what is happening in Pakistan this week. Flash floods of biblical proportions are displacing 30 million people and 20% of the country became submerged. Think about these numbers for a second. It’s crazy.

This is what a materialized upstream risk looks like when there is too much flow in a system. Riverbeds can’t hold the flow of water and everything goes to shit.

Never forget: Climate catastrophes like this one are more expensive than an energy transition to carbon-free energy sources.

You might ask: Art, I thought that this newsletter is about positive and optimistic narratives.

To which I say: Yes and it is also important to not lose sight of the broader context of the challenge. Having an eye on upstream risks will give you a more complete picture of the situation and equip you better to come up with important solutions in our Journey to Net Zero.

Regardless if you’re standing on a river bank, running a business, or governing a country, it helps to look at what’s happening upstream.

It doesn’t mean that it will happen but it helps to think about what could happen if something changes further upstream.

We should expect more droughts and more floods. I just gave you four examples of what can happen if we have either of those events.

As long as we are emitting greenhouse gases, we will see our temperatures rise.

As long as temperatures rise, the weather will get more extreme.

As long as the weather will get more extreme, we will experience more natural catastrophes.

All of these events are starting to affect our most basic needs: a safe body and a safe mind. In my essay Democratic Dominoes, I called them Wartime Needs.

The positive thing I draw from this essay is that more and more people will not only understand (in theory) but experience (in practice) what climate change actually means.

It will trigger more people to act.

When people enter the greatest game of our generation they should understand this: Upstream risk is not like Vegas.

What happens upstream, stays upstream.

What happens upstream has a direct impact on us.

As always, if you want to reach out to me, just reply via mail or ping me on Twitter.

Last week was completely crazy. There were almost 50 new people who joined this newsletter. I appreciate each and every one of you. Please don’t be shy and say hi 🙏

If you enjoyed this essay, please consider forwarding it to someone who might be interested.

If you hated this essay, please tell me how I can improve, and let’s discuss.

Thank you! Thank you! Thank you! 🙏

Art