Resource depletion: Opportunity or looming catastrophe?
We will
need to produce 70% more food by 2050 to meet the demands of the world's
massively expanding population, according to the United Nations
Imagine a world of spiralling food prices, water
shortages and soaring energy costs.
For many living in the world today, this nightmare
scenario is already a reality. Even for the well-off living in developed
economies, it is becoming all too familiar.
And on current projections, it's going to get a whole lot
worse. Short-term fluctuations in supply and demand aside, a global population
explosion combined with finite resources means the planet cannot sustain
ever-increasing levels of consumption using current models of production.
And there isn't much time to do something about it.
"The challenge we are facing over the next 20 years
is unprecedented," says Fraser Thompson, senior fellow at the McKinsey
Global Institute.
Exploding population
In the past 10 years, global commodity price increases
have wiped out all the declines seen during the past century, during which
prices almost halved despite a fourfold increase in the world's population and
a massive expansion in the global economy.
The reasons for such price falls were simple - the
discovery of new sources of relatively cheap supply allied with new
technologies.
But the era of abundant cheap resources is drawing to an
end, for reasons equally straightforward.
The global population currently stands at seven billion
people, and is predicted to rise to more than nine billion by 2050 - that's
roughly the population of the UK being added to the planet every year.
More importantly, there could be up to three billion new
middle-class consumers, mainly in China and India, according to McKinsey. They
will drive demand for meat, consumer goods and urban infrastructure, not to
mention the energy needed to produce them, to levels unheard of in human
history. For example, McKinsey expects the number of cars in the world to
double by 2030.
Fossil
Fuel reserves
Fuel
|
Reserves
|
Years
left
|
Oil
|
1,386
billion barrels
|
46.2
|
Gas
|
187.1
trillion cubic metres
|
58.6
|
Coal
|
860,938
million tonnes
|
118
|
Source: BP. Reserves calculated at current price using
current technologies
And while demand for resources from an exploding and
wealthier population soars, finding and extracting new sources of supply is
becoming increasingly difficult and expensive.
For example, oil companies have to look further and drill
deeper to find dwindling reserves of oil, meaning the cost of an average well
has doubled in the past ten years, while new mining discoveries have been
largely flat despite a fourfold increase in exploration costs.
The discovery of shale gas could have a major impact on
meeting global energy needs in the decades to come, but as Laszlo Varro, head
of gas, coal and power markets at the International Energy Agency, says, just
burning current reserves of fossil fuels using existing technologies would
create enough carbon dioxide "to boil the planet several times over".
Water shortages
But it's not just traditional energy sources that are a
cause for concern, particularly given that resources are becoming increasingly
linked, with shortages and price movements in one having a much greater impact
on others.
Resource Depletion in number
- It took 130,000 years for the earth's population to
reach 800 million in about 1780. Currently, almost 800 million are added every
10 years
- About 200 years ago, each human had the equivalent of
24 football fields of land and freshwater resources. Today, each human has
three fields and in 40 years it will be less than two
- By 2030, there will be three billion more middle-class
consumers in the global economy
- Water scarcity affects one in three people on every
continent of the globe
- On current trends, over the next 20 years humans will
use 40% more water than they do now
- It takes 2,400 litres of water to produce a hamburger
and 11,000 litres to make a pair of jeans
- The average cost of drilling for oil has doubled over
the past decade
- Forty-four million people were driven into poverty by
rising food prices in the second half of 2010
-Demand for steel is set to rise by 80% between 2010 and
2030.
Sources: McKinsey, Homo Sapiens Foundation, World Health
Organisation, Protected Water Fund
Take water, which underpins the production of pretty much
every manufactured product on earth - for example, almost 50 gallons are used
to extract one gallon of oil, says Dr Richard Mattison, chief executive of
corporate environmental research group Trucost.
Demand for water over the next 30 years is projected to
rise by almost a half at a time when the groundwater table in many regions of
the world is falling and large areas are suffering from shortages due to
drought, large-scale irrigation, pollution, dams and even war.
Finite land resources are also coming under enormous
pressure.
Urbanisation displaces millions of hectares of
high-quality agricultural land each year - McKinsey estimates that prime land
equivalent in size to Italy could be sacrificed to expanding cities in less
than 20 years.
At the same time, tens of thousands of square kilometres
of pristine forest are cut down to grow crops needed for food, of which we will
need 70% more by 2050 to feed the world's massively expanding population,
according to the United Nations.
In fact, vast swathes of natural land are being converted
for all manner of uses across the world, destroying essential
so-called ecosystem services such as flood protection and genetic resources
used for live-saving drugs.
'Critical list'
But it's not just physical depletion that leads to
scarcity. For some resources, political and financial factors can exacerbate
the problem, particularly in the short term.
A recent survey by consultants Price water house Coopers
(PwC) found a shortage of key minerals and metals could "disrupt entire
economies".
It compiled a "critical list" including
lithium, which is widely used in batteries and wind turbines, cobalt, again a
key component in rechargeable batteries, and tantalum, which is used in mobile
phones and computers.
Geologists prefer not to speculate on the planet's finite
reserves of these valuable resources, some of which are already running low,
for the simple fact that more could be discovered, but political factors alone
make them hard to come by.
China, for example, where most so-called rare-earth
elements are found, already severely restricts exports to other countries.
India and Vietnam have also curbed exports of mineral resources and the pressure
for other countries to follow suit is growing.
Equally, increasingly volatile commodity prices, borne in
part of increasing uncertainty over supply, mean companies are less willing to
invest in discovering new supplies, unsure of the return they will make on
their investment.
This creates a potential vicious circle, where volatile
prices have an impact on supply, making prices yet more volatile, all the while
exacerbating the problem of scarcity.
Radical solutions
Clearly, then, something has to give if humans are to
live within the Earth's means, as they must.
Companies
are being forced to spend huge amounts of money to secure their water supplies
As Martin Chilcott, founder of the sustainable business
community 2degrees, which counts many of the world's largest corporations among
its members, says: "The potentially infinite increase in demand for
products is clearly unsustainable.
"Given finite resources, population growth allied
with the growing middle classes means the maths just doesn't add up."
Some argue the answers are already out there.
Productivity improvements, Mr Thompson says, would alone help meet almost 30%
of demand for resources by 2030 and present trillions of dollars of savings to
global companies.
New technologies, substitute materials and greater
investment in supply will also be needed, he says. McKinsey estimates that
about $3tn a year would help meet demand for steel, water, agricultural
products and energy. This is about 50% more than current investment.
Others argue more radical solutions are required.
"Policy intervention is needed to protect resources
that are not priced or incorrectly priced," says Malcolm Preston, global
sustainability leader at PwC.
Water is a case in point. Despite being the world's most
precious and increasingly scarce resource, it is incredibly cheap, and in many
parts of the world, free.
Correcting this price anomaly would have huge
consequences for businesses. Trucost has calculated that more than a quarter of
profits of the world's biggest companies would be wiped out if water was priced
to reflect its value, as it must be.
Land is another example. Huge chunks of the natural world
have no monetary value placed upon them, and yet they provide services worth
trillions of dollars to the global economy. Only now is this value being
recognised and painstakingly calculated.
Energy efficiencies, renewable energy and a massive
increase in recycling will also be needed.
Some are even calling for what is known as a circular
economy, a comprehensive rethink of our current model of production and
consumption, where one company's waste is another's raw material, and where
obsession with the ownership of material goods is moderated.
Inevitable for some, an unrealistic step too far for
others. But one thing is certain, as things stand the numbers don't add up and
the odds are stacked against us. Drastic change is needed.
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