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Beyond Ratings Weekly Digest

Your briefing on augmented financial risk analysis

N°156 ▪ August 3rd 2018


Summertime, and the beaches are… disappearing

As summer vacation is underway for a significant part of the Northern hemisphere, this seems a good opportunity to raise attention to the sand crisis. To be sure, global sand resources seem infinite and the world does not lack beaches or vast deserts. And yet, people are often completely unaware that the risk of sand shortages is strongly increasing.

Sand has so many uses and is so omnipresent in our day to day lives that ensuring a steady supply should be a matter of national strategy. It is melted into glass or incorporated as silicon dioxide into food and pharmaceutical applications, personal care products, paints and so on. It also provides strategic minerals such as silicon, thorium, titanium and uranium, on which rely all kinds of electronics and aeronautical components. Because of population growth and economic development, the booming construction sector is the largest consumer of sand, specifically reinforced concrete which is valued for its technical performance and cheap production costs. States and public services are the second biggest culprits, notably through road embankments, land reclamation, and beach nourishment. In fact, building a mere kilometer of highway eats up 30,000 tons of sand.

Sand and gravel (also referred to as aggregates) are the most extracted material in the world by weight and the 2nd most consumed resource after water. According to UNEP, the world’s use of aggregates exceeds 40 billion tons annually. Even so, due to the prevalence of official under-reporting around the world, these numbers may still underestimate global sand extraction and use.

The trouble is that over-exploitation of sand is damaging to national assets. Intensive excavation has already depleted most land quarries, which were historically the easiest sources to exploit. Since desert sand is not suitable to be used in construction – its round, polished shape prevents the binding of grains – operators gradually shifted to river, coastal and marine sands. It turned out that extracting aggregates from riverbeds induces more intense and more frequent floods and threatens the water supply by lowering the water table. Consequently, several countries took measures to forbid it or strengthened regulation frameworks.

Oceanic extraction appeared at first less damaging to local economies, yet it also brings its share of problems. The use of huge dredgers inevitably destroys seabed habitats and ecosystems, which in turn, impacts submarine organisms of the upper water layer. This eventually threatens the livelihood of coastal communities and islanders that rely on fishing activities. Another issue that should have been anticipated is that removing offshore sand disturbs a natural equilibrium: these newly depleted spaces refill with coastal sand that logically relocates from the shorelines. Therefore, submarine extraction accelerates coastal erosion, depletion of beaches and disappearance of small islands. It is estimated that already 75 to 90% of the planet’s beaches have started to retreat.

Beaches serve as geological barriers that protect the inlands, including houses and infrastructure. Thus, their absence triggers a decline of protection against extreme events such as floods, droughts and storm surges, leading to increasing costs in disaster prevention and response. There are also serious economic stakes: for instance, half of Florida’s GDP depends directly on beach-related tourism, thus coastal erosion directly threatens these incomes. Beach nourishment is often used as a solution; however, such intervention is extremely costly and mostly inefficient since the sand artificially put in place usually lasts less than 2 years.

The impact is also geopolitical. The contraction of shorelines modifies international frontiers and compels local populations to migrate to already highly stressed locations demographically speaking. In Indonesia for instance, at least two dozen islands have already disappeared since 2005 and Bali is becoming dangerously crowded. Singapore is also a good example of sand-related dispute. The city-state has become by far the world’s largest sand importer to sustain its massive development, so much so that the neighboring countries of Cambodia, Vietnam, Malaysia and Indonesia, all of which directly suffer the consequences of over-extraction, decided to ban sand exchanges with Singapore.

International sand exchanges represent each year a net value of 70bn dollars. Over-exploitation, depletion, growing demand and swelling prices have unleashed mafias that conduct illegal trade in soil and sand. All over the world, illegal sand mining operations have become widespread due to weak governance and corruption. Criminal gangs steal beach and river sand to sell to the construction industry. The worst may be that a significant trigger for the current construction boom – which uses up huge proportions of sand – is mere property speculation. In many countries, slums continue to grow while most new apartments are still deserted and much too expensive for the poorest population to afford. In China for instance, 65 million apartments are uninhabited. In Spain, 30% of accommodations constructed after 1996 are still vacant.

So, what can be done? Sand is almost free, which makes it the most interesting material in terms of economic realism. Yet with such dire consequences, sand also has a hidden cost that should be accounted for. Alternatives exist: in construction, other materials can be used such as hay or wood, and industrialists are increasingly encouraged to operate with part-recycled materials. It is also proven that ground glass retains the same mechanical properties as sand and could be used as a substitute. Although more expensive, sand extraction could be organized from dams, which trap massive amounts of sand that will never reach the coasts.

Authorities have both stakes and leverages in addressing the sand issue. From a national strategy approach, these alternatives could be encouraged, even incentivized, to get over the current short-termism and stop the exploitation of such a precious resource. Regulations can also be strengthened at national to supranational level – few exist outside of the European Union – and some actions are duly needed to resorb weak governance, corruption and sand-related illegal mining and smuggling. From an environmental point of view, better monitoring of aggregate extraction should be set up, including impact assessments. But perhaps a very first step for us would be, this summer whilst lying on the sand and enjoying a nice vacation, to take a moment to contemplate how much more this sand can do and how serious the need is for its protection.

Claire Hugo, Climate Analyst  –  Sources: Beyond Ratings, Denis Delestrac; United Nations Environment Program (UNEP) 



Sovereign Risk

France: Inflation at its highest level since 2012!

According to the preliminary estimate of the French statistical institute (Insee), the rise in consumer prices reached its highest level since July 2012, at 2.3% over one year, after 2% in June. But in 2012, the economic situation was very different. The economy was under monetary and fiscal support and growth was 0.2% (against 1.7% expected this year with stronger fundamentals). Even if prices have fallen by 0.1 percentage point (pp) in France over the past month, mainly due to summer sales, on a year-on-year basis, they still rose by 0.3 pp in July. A spectacular progression… This situation is not unique to France. The whole Eurozone is experiencing a rise in inflation. The rise in prices reached 2.1% in July, said Eurostat. So, inflation is really back!

What explains this rapid rise in inflation? The oil counter-shock took place. Indeed, the price of a barrel of Brent oil rose from USD 52.5 to USD 75 over a year. In its wake, energy prices rose by 14.3% over the same period, details Insee. And fuel taxes rose sharply at the beginning of the year. The good news is that a peak has probably been reached according to Insee. Indeed, the French statistical institute expects a decline in the second half of the year. According to Insee, year-on-year inflation should fall to 1.7% by the end of the year. Because, unless there is aggravation of the crisis between Iran and the United States, the price of the black gold should stabilize. The price of the barrel fell by nearly 4% in July.

Julien Moussavi, Head of Economic Research – Sources: Beyond Ratings, Reuters


Overshoot Day trends: good news or bad news?

Earths equivalent trend (capita and GDP)

People consume the Earth’s natural resources to produce what they need. However, there are only so many resources that the planet can renew and so much carbon it can absorb in one year. The “Earth Overshoot Day” represents the date when the planet’s ecological footprint exceeds its biological capacity. Put more simply, it is the date when humanity has exhausted nature’s budget for the year and starts depleting resource stocks and accumulating carbon dioxide in the atmosphere. This year it happened on August 1st.

1970 was the last year where humankind consumption and earth production were on par with each other. At this time, the “Earth Overshoot Day” was on December 29 but the global population has more than doubled since then and GDP has quadrupled. This means that global efficiency has been increasing for the last 50 years. Despite an improved quality of life and wealth creation, individual footprint tends to be quite stable since the early nineties- around 0.22 earth by billion people. Accordingly, the current average consumption structure is consistent with about 4.5 billion people far from the 11 billion forecasted in 2100. Finally, the theory of collapse emphasizes the fact that, at a certain level of overexploitation, the earth’s renewable capacity will drop, inducing a terrible vicious cycle. Current figures and trends seem to indicate that we are not (yet ?) at this breaking point.

Emeric Nicolas, Head of Data Science Dpt.  –  Sources: Beyond Ratings, Global Footprint Network, Earth Overshoot Day, UN, World Bank

Carbon/Climate Change

The UK has run out of liquefied CO2!

In June 2018, the UK faced a shortage of liquefied CO2. As a result, corporations like Coca-Cola decided to close production lines temporarily. In fact, many businesses need a supply of liquid CO2 to operate. A few examples are the drink and food industries, but also pharmaceuticals. Peak demand occurs in June when the demand for fizzy drinks takes off and when plants that produce ammonia close for maintenance. The reason for this is that CO2 is industrially obtained as a by-product of the ammonia production, so both productions are linked to each other but the demand for these products doesn’t always correspond.

Another reason for this occasional shortage is that CO2 is a cheap gas that takes up quite a lot of space, making it difficult to transport over long distances. This is not to mention the CO2 emissions associated with transporting CO2. Granted, the CO2 the UK needed was not the dirty kind that comes out from car’s exhaust pipes but “a clean and pure” CO2. Some recovery technologies exist, and the Canadian company Carbon Engineering has already developed a prototype that captures and purifies roughly 1 ton of CO₂ per day. However, this solution has not been commercially explored and there are many doubts regarding its profitability. This is due to the difficulty of capturing CO2 molecules that represent less than 0.05% of the atmosphere and the challenge associated with transforming raw CO2 into a usable commodity.

0.05% might seem to be an insignificant proportion of our air but small variations are enough to create massive climate disruptions. It is estimated that the average temperature of the Earth’s surface would be -18°C without CO2 in the atmosphere.

Nathan Breen, Climate Analysis Team  – Sources: Beyond RatingsThe Guardian


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© Beyond Ratings 2018

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Photo credit via Visualhunt/CC BY-SA or other: Front page ▪ Credit 1: CECAR – Climate and Ecosystems Change Adaptation R; Credit 2: Tony Webster; Credit 3: Kiefer.; Crédit 4: NASA Goddard Photo and Video / Research notes ▪ Credit 1: DnDavis (via; Credit 2: zhu difeng (via Fotolia); Credit 3: Mny-Jhee (via Fotolia); Credit 4: xmentoys (via Fotolia)


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