Resource Revolution: Supplying a Growing World in the Face of Scarcity and VolatilityAugust 24, 2012 By Kate Diamond
Over the next two decades, as many as three billion people will join the middle class, even as billions more live without electricity, modern cooking fuel, and safe and reliable access to food and water. Resources are becoming more scarce and more difficult to extract, and combined with environmental factors ranging from climate change to soil erosion, those changes will make meeting middle class demand all the more difficult while leaving the world’s poorest more vulnerable to price shocks and resource shortages. In a recent report, the McKinsey Global Institute concludes that nothing less than a “step change” in how resources are managed will be required if individuals, businesses, and governments are to overcome these trends and pave the way for a more sustainable and equitable future.
Scenarios for Future Production
“Meeting projected resource demand would require historically unprecedented increases in supply,” but limits to key and finite resources, especially water and land, make such increases unrealistic, authors Richard Dobbs, Jeremy Oppenheim, Fraser Thompson, Marcel Brinkman, and Marc Zornes write in Resource Revolution: Meeting the World’s Energy, Materials, Food, and Water Needs. What’s more, “the fact remains that rapid growth in supply can involve significant capital, infrastructure, and geopolitical risks and can have a negative impact on the environment.”
Meeting future demand will therefore require steps beyond simply increasing production levels. Production must become more efficient, and to this end the authors present a detailed list of 130 “productivity improvement opportunities” that, if realized, could meet up to 30 percent of demand for resources in 2030 and account for $2.9 trillion in additional “value to society.” While the list is lengthy, the top 15 suggestions account for three-quarters of expected savings, and some of them, like reducing municipal water leakage, would be relatively straightforward to accomplish. Others, however, such as changing transportation preferences to favor public transport and walking over driving, promise to be time-intensive and difficult to achieve.
And then there’s climate change to contend with. Even capturing all 130 productivity opportunities, which the authors admit is unlikely, “[it] still would not be sufficient to address climate change.”
Given the production focus of the report, climate change enters the equation to the extent that it is expected to exacerbate scarcity issues, whether through water shortages that restrict mining operations, desertification limiting arable farmland, extreme weather destroying infrastructure, or other similar scenarios. Not surprisingly, the recommendations the authors offer to counter climate change are therefore fairly limited. More renewable and lower-carbon energy sources will help (including more nuclear power and shale gas, which face expansion hurdles in light of the Fukushima disaster and the fracking debate in the United States), as will better forest and pastureland management (though the authors do little to specify what this means in practice).
Hurdles to Hoped-For Gains
The report contains a great deal of promise – trillions of dollars in gains for society, greater chances of economic and even political stability, and a more equitable future for the 20 percent of the world currently living without reliable access to energy and the 40 percent lacking modern cooking fuel (the vast majority of those live in South Asia; proportionally, however, sub-Saharan Africa has a higher share of people living without access to electricity and fuel than anywhere else – 69 percent and 78 percent respectively).
That promise, however, hinges upon a slew of difficult decisions, like reorienting individual transportation preferences. Another recommendation, this one for governments, would be an even more impressive feat: Eliminate subsidies for water, agriculture, and energy, and price carbon at $30 per ton.
The recommendations highlight a tension running throughout the report that pits political realities against the need for paradigm-shifting change. “It’s a 10-15 year problem, climate change is maybe a 20-year problem, but our political time horizons at the moment…are on two to three years duration,” McKinsey Director and report author Richard Dobbs told Reuters last November.
That disconnect means that states will have to dramatically change how they plan for and manage their resources. The authors, while provocative, are not naïve on this point. “Deep institutional and policy change is necessary” if resource management is to improve, they write.
What About the 10 Billion?
“While many people talk about the 7 billion on the planet today and the 10 billion in the future, we believe that it’s this next 3 billion middle class…where we really need to focus our thinking and our efforts,” said report author Marc Zornes in an interview with the University of Cambridge.
The preoccupation with that three billion – encapsulated by growing middle classes in India and China – masks how dynamic population growth can be. The authors assume a 0.9 percent average annual rate of growth through 2030 (based on data from the consulting firm IHS Global Insight), which falls shy of the United Nation’s medium-variant projection of 0.94 percent over the same timeframe. Importantly, that projection is not a certainty, and rates could be as high as 1.2 percent under the UN’s high-variant projection or, conversely, as low as 0.7 percent following the low-variant projection. That would make the difference between 900 million more people in the world, changing many of the underlying assumptions in McKinsey’s scenarios.
The authors acknowledge that wide range, but do little to explore the changes these alternative projections might have in the production-consumption equation. In doing so, the report, which otherwise confronts difficult policy questions head-on, misses out on a huge part of addressing future development.
Focusing on three billion also distracts from the importance of disproportionately rapid rates of population growth in the world’s most biodiverse regions. Those areas are crucial to any number of aspects of global development (including sustaining both traditional and new medicines, the authors note), but they are disappearing fast as population growth, economic factors, and food needs fuel demand for more and more land.
Many of these biodiversity hotspots lie in developing countries, which hold “between 70 and 85 percent of the opportunities to boost resource productivity” and yet are often hampered by minimal infrastructure, weak land rights, political instability, and even conflict. Within these countries, the people living closest to hotspots are likelier to be poorer than average still, meaning the rising tide of the global middle class may leave them behind. And, as deforestation in frontier areas like the Amazon and Indonesia (and the accompanying loss of carbon sinks and increase in carbon emissions) has shown, their plight can have global effects.
This inequity, which the rush to develop natural resources can exacerbate, receives little discussion in the report beyond a basic acknowledgement that “growing concern about inequality might also require action.”
Overall, the report takes on what its authors readily acknowledge is a difficult task: assessing production possibilities in light of growing demand and constricting natural resource supply – with the added uncertainty of future climate change and indeterminate development paths complicating both.
The solutions the authors propose are innovative, if not immediately realistic (a shortcoming they again acknowledge). Encouragingly, the report marks the beginning of a much larger project, one that will include country-specific analyses, so there’s obviously room to expand on these questions. In the meantime, whether the report’s sweeping recommendations can make it from concept to policy remains to be seen.
Sources: International Energy Agency, Reuters, United Nations Population Division, World Wildlife Fund.
Image Credit: Resource Revolution: Meeting the World’s Energy, Materials, Food, and Water Needs, McKinsey Global Institute. Video: Cambridge Judge Business School.