Zebra mussels: Creating an unlikely investment opportunity?

CIO Global Blog

05 Dec 2019

In one of our recent reports, we said that the maritime transport sector is set to undergo a sea change in terms of environmental regulations. It will lead to clean tech investment in scrubbers and ballast-water treatment equipment for new and existing ships.

You would be forgiven for not knowing exactly what that means. So let's turn back to 1988 – when zebra mussels first invaded US waters including the Great Lakes. We know that raises a few questions – and we'll try to address them.

What are zebra mussels? They’re a fingernail-sized mollusk, originally from the Caspian Sea. They like to colonize hard surfaces.

How did they get to US waters? They were sucked up in ballast water on cargo ships, and then later discharged when the ships reached their destination.

So why are we talking about them? They reproduce extremely quickly – an adult female mussel can alone lay up to one million eggs a year. The type of hard surfaces they are attracted to include water pipes of power plants in the US. It's already difficult to maintain these pipes, and the invasion of this species just makes it more of a hassle.

The economic and environmental cost has been huge since they were first detected. In 2012, The US Fish and Wildlife Service estimated the cost to US hydroelectric facilities alone at USD 250–300m annually.

That doesn't even include the costs from environmental damages, or increased operating expenses for hatcheries and water diversions.

One aspect of this environment damage is harm to bird life. Zebra mussels filter water in a way that encourages the spread of botulism in algae, which is eaten by bottom-feeding fish that are, in turn, eaten by birds, leading to deaths from avian botulism.

And guess what? This isn't just a problem exclusive to the US. The quagga mussel, another invasive species, has been detected in the Lake of Konstanz – the largest lake in Germany and just 40km away from Zurich, Switzerland – clogging up water pipes and jeopardizing local species. It was first discovered in 2016, and the city of Konstanz has already hired four additional people to clean the water pipes there. That might not sound like a lot, but Konstanz has just 83,000 inhabitants. The local authorities estimate an additional investment in the mid-three-digit millions to filter the water – bear in mind the mussel larva is only 40–50 nanometers!

In any case, this invasion hasn't gone unnoticed by policymakers. Indeed, pressure on the International Maritime Organization to act has contributed to regulatory change. Since September, all new ships now have to have ballast water treatment systems. And by 2024, every ship needs to comply.

By 2024, that's an estimated cost of as much as USD 80bn to the shipping industry, according to a June estimate by the International Chamber of Shipping.

Our own estimate is that up to 50,000–70,000 ships worldwide need to be fitted, which means they’re facing an average cost of USD 550,000 to USD 1.1m per vessel.

But there is a bright side here. As we said “the maritime transport sector is set to undergo a sea change in terms of environmental regulations. It will lead to clean tech investment in scrubbers and ballast-water treatment equipment for new and existing ships.”

Now that you know some of the backstory, you also know what you could invest for. Look toward our Water scarcity longer-term investment theme and Life Below Water: World Oceans Day 2019 publications to find out how you can benefit from action to prevent the spread of invasive species – consistent with the United Nation’s Sustainable Development Goal 14 – Life Below Water. The report on water scarcity discusses the opportunity within ballast water treatment systems, in our view the fastest growing part of the overall water market, and also highlights other opportunities across the entire value chain, including companies involved in water exploration and distribution.

Author:

Sagar Khandelwal, Strategist, UBS Switzerland AG
Alexander Stiehler, CFA, Analyst, UBS Switzerland AG
Vincent Heaney, Strategist, UBS AG

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