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Lake Powell, on the Colorado River in Utah and Arizona, is the second-largest reservoir in the U.S., right behind Nevada’s Lake Mead, which also stores water from the Colorado River. Both are shrinking much faster than expected and on Monday the federal government for the first time declared a water shortage at Lake Mead. Photo: Bernard Spragg/flickr.

Good day and welcome back. I just arrived home to the Bay Area last night after a week in Hawaii, where everyone is wearing masks and no one is worried about water. As opposed to California, where nobody is wearing masks and everybody is worried about water. (Hat tip to Tom Bemis.)

August is a weird month for investors, and journalists, as everybody tends to go away and then miss what are likely the one or two news events of the year. Market corrections, coups, natural disasters. August is full of them. This summer is no different, as the tragedy unfolding in Afghanistan in the past few days and the climate emergencies raging across the globe in the past month fill the news cycle.

Among the headlines though, the decision by the federal government this week to ration water from the Colorado River is a game changer of the first degree. The 1,450-mile river, which serves 40 million people, relies on water from Lake Mead, which was formed by the Hoover Dam in 1950.

Lake Mead has lost 143 feet of water in the past two decades and is operating now at about 1,068 feet, or 35% capacity. Arizona will see cutbacks to farmers starting in January, but if it falls another 23 feet, the cuts will begin to apply to California as well. In addition to farmers, dozens of hydroelectric power plants rely on the river and will at some point be unable to operate if water levels continue eroding.

Not surprising, water stocks are surging this summer, led by the First Trust Water ETF (FIW) and the American States Water Co. (AWR). The Nasdaq Veles California Water Index (NQH2O) is up 8% Tuesday and has almost doubled since April.

As we’ve said before, the concept of free water is quickly becoming outdated, and today’s restrictions could soon become tomorrow’s water wars among states and communities. Already here in Marin County, we’re planning to pipe water in from across San Francisco Bay next year as we face a historic shortage.

It’s possible water tourism will become a thing at some point as well, at least for those of us in the West. But for now, investors would do well to pay attention to headlines about droughts, restrictions and low levels. The market reaction is only just beginning.

More insights below. . . .

Don’t forget to contact me directly if you have suggestions or ideas at dcallaway@callawayclimateinsights.com.

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Tuesday’s subscriber insights: BlackRock’s EF Hutton moment, plus Embraer raises the stakes

This ‘70s-era EF Hutton commercial takes place in a restaurant featuring two men discussing their brokers. The slogan ‘When EF Hutton talks, people listen’, along with an advertising campaign, was created by the agency Benton & Bowles. Image: EF Hutton.

. . . . BlackRock, the EF Hutton of climate investing, is out with a five-year climate strategy this week that looks deceptively simple. Buy the clean techs and healthcare companies, and be wary of the energy transition plays. Indeed, with oil stocks up 30% this year, it’s easy to be complacent about the pace of change, despite the dramatic climate headlines this summer. But students of Hemingway might disagree. Read why here. . . .

. . . . There are climate pledges and then there are climate pledges. Count Brazilian aircraft manufacturer Embraer’s (ERJ) promise for net zero aviation emissions by 2050 among the latter. Plans for an electric aircraft in five years and a move to sustainable aviation fuel are ambitious in an industry that is responsible for 12% of all greenhouse gases and is only just starting to experiment with new technologies. How those early models perform will be closely watched. Read more here. . . .

To read all our insights, news and in-depth interviews, please subscribe and support our great climate finance journalism.

Editor’s picks: Infrastructure bill to support water projects, Brazil’s changing our taste in coffee

Dakota Smith @weatherdak

Fred, Grace, Henri. The tropical Atlantic trio swirlin' away. A busy few months ahead.

Facebook offers water projects for data center

Facebook (FB) has announced it is building a new data center in Mesa, Ariz. and also is developing plans to mitigate the center’s impact on an area with scarce water resources. Data Center Frontier reports that the tech giant outlined three water restoration projects that will restore more than 200 million gallons of water per year in the Colorado River and Salt River basins and help provide greater water security for Arizona. The company said the 960,000 square foot Mesa facility will use 60% less water than the typical data center due to extensive use of fresh air for cooling. Facebook told local media that it will not draw water rights from the city of Mesa.

Western water projects in the infrastructure deal

Funding for Western states’ water projects that farmers, water providers and environmentalists say are badly needed across the drought-stricken region is included in the sweeping $1 trillion infrastructure bill approved by the Senate. A new report from The Associated Press details how the bill’s $8.3 billion for water projects would help bring relief in coming years. The planned projects include water storage and recycling improvements, drought mitigation measures, desalination, dam safety and rural water programs.

Climate change is shifting Brazil’s coffee production

In a sign of how climate change is affecting global trade, Brazil reportedly is cultivating stronger robusta coffee beans because they can take hotter temperatures. Reuters reports that robusta, which it notes is less expensive and considered inferior to arabica, is gaining in popularity and will likely influence our tastes and the flavor of coffee in years to come “as the harsher and more caffeine-charged robusta variety, widely used to make instant coffee, makes its way into the pricier ground blends currently dominated by arabica.”

Today in wildfires

. . . . As of Aug. 17, the Fire Information for Resource Management System reported nine new large incidents in the U.S., two large fires contained, and 93 large fires uncontained. The Northern California region has retaken the top spot as the most active, with 15 new fires and 10 uncontained large fires. Across the nation, the National Interagency Coordination Center reports that as of Tuesday morning, more than 24,854 firefighters are battling 111 blazes that have burned 2.8 million acres in the past day. . . .

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Callaway Climate Insights

Water prices leap as cutbacks take hold; plus…